Suppose that government imposes a specific excise tax on product X of $4 per unit and that the price elasticity of supply of X is unitary (coefficient = 1). If the incidence of the tax is such that the consumers of X pay $2 of the tax and the producers pay $2, we can conclude that the

Question

Quizplus · Accepted Answer

When the price elasticity of supply is unitary and the tax burden is equally shared between consumers and producers, it implies that the demand for X is also unitary elastic.

Suppose That Government Imposes a Specific Excise Tax on Product