A tax is imposed on orange juice. Under what circumstances will consumers bear the burden from this tax?
A) when the supply curve for orange juice is unit elastic
B) when the supply curve for orange juice is perfectly inelastic
C) when the demand for orange juice is perfectly inelastic
D) when the demand for orange juice is perfectly elastic

Question

Quizplus · Accepted Answer

When the demand for orange juice is perfectly inelastic, consumers will bear the entire burden from the tax because they are unable to adjust their consumption in response to the increase in price. In contrast, if the demand is perfectly elastic, consumers will not bear any burden because they will simply switch to a substitute product. The supply curve is not directly relevant to determining the incidence of the tax.

A Tax Is Imposed on Orange Juice