Suppose a tax is placed on wine, this will mean:
A)the quantity of wine sold in the market will be unchanged because wine has perfectly inelastic supply
B)the tax will be entirely passed on to the buyers
C)the quantity of wine sold in the market will fall
D)the tax will be paid entirely by the sellers

Question

Quizplus · Accepted Answer

The imposition of a tax on wine will increase the cost of production for sellers, causing them to reduce the supply of wine in the market. This reduction in supply will lead to a fall in the quantity of wine sold in the market, as consumers will have to pay a higher price for the product. Therefore, option C is the best choice. Option A is incorrect because wine does not have a perfectly inelastic supply. Option B is incorrect because it assumes that the entire tax burden will be borne by buyers, which is not necessarily true. Option D is also incorrect because it assumes that the entire tax burden will be borne by sellers, which is not necessarily true either.

Suppose a Tax Is Placed on Wine, This Will Mean