If the supply of a product is perfectly elastic and demand is downsloping, an excise tax of $2 per unit will increase price by

Question

Quizplus · Accepted Answer

When supply is perfectly elastic, it can respond infinitely at the current price level, meaning suppliers will absorb the cost of the tax without changing the price. However, because demand is downsloping, the imposition of a $2 excise tax will be fully reflected in the price paid by consumers, leading to a decrease in equilibrium output as the market adjusts to the new price level.

If the Supply of a Product Is Perfectly Elastic and Demand