Suppose that the demand for lava lamps is elastic,and the supply of lava lamps is inelastic.A tax of $2 per lamp levied on lava lamps will increase the price paid by buyers of lava lamps by

Question

Quizplus · Accepted Answer

Since demand is elastic, a small increase in the price will lead to a proportionately larger decrease in the quantity demanded. On the other hand, since supply is inelastic, the quantity supplied will not change much in response to the tax. Therefore, the burden of the tax will mostly fall on the buyers in the form of higher prices. The exact amount of the price increase will depend on the specific numerical values of supply and demand, but it is safe to say that it will be less than $2. Therefore, the best choice is A.

Suppose That the Demand for Lava Lamps Is Elastic,and the Supply