If supply is relatively inelastic when compared with demand in a perfectly competitive market,:
A)consumers will share a larger burden of an excise tax than producers.
B)consumers and producers will share the burden of an excise tax equally.
C)producers will share a larger burden of an excise tax than consumers.
D)the incidence of the tax cannot be determined without more information.

Question

Quizplus · Accepted Answer

When supply is relatively inelastic compared to demand in a perfectly competitive market, it means that producers are unable to increase the quantity of the product even if there is an increase in demand or price. In this scenario, if an excise tax is imposed, producers will not be able to absorb the additional cost and will pass it on to consumers by raising the price of the product. As a result, consumers will end up paying a higher price and bear a part of the tax burden, but since supply is relatively inelastic, producers will also bear a significant portion of the tax burden. However, producers may shift a larger portion of the tax burden if the demand for the product is very strong and consumers are willing to pay a higher price for it.

If Supply Is Relatively Inelastic When Compared with Demand in a Perfectly