Suppose the demand for picture frames is elastic and the supply of picture frames is inelastic.A tax of $1 per frame levied on buyers of picture frames will increase the equilibrium price paid by buyers of picture frames by

Question

Quizplus · Accepted Answer

Since demand is elastic, the tax burden will fall mainly on buyers rather than sellers. However, since supply is inelastic, sellers may not be able to increase their quantity supplied in response to the increased price. As a result, the price paid by buyers will increase, but by a smaller amount than the tax itself. The exact amount of the price increase will depend on the specific elasticities of supply and demand, but it will definitely be less than $1. Therefore, the correct answer is C, a positive amount but less than $0.50.

Suppose the Demand for Picture Frames Is Elastic and the Supply