Good A has a perfectly inelastic demand and an upward-sloping supply curve.Good B has a perfectly inelastic supply and a downward-sloping demand curve.If the same sales tax is imposed on the sellers of both good A and good B,the
A)price paid by buyers of good B rises by more than the price paid by buyers of good A.
B)price paid by buyers of good A rises by more than the price paid by buyers of good B.
C)price paid by buyers of good A rises by the same amount as the price paid by buyers of good B.
D)quantity bought by buyers of good B decreases by more than the quantity bought by buyers of good A.
E)quantity bought by buyers of good A decreases by more than the quantity bought by buyers of good A.

Question

Quizplus · Accepted Answer

Since good A has a perfectly inelastic demand and an upward-sloping supply curve, the burden of the tax will fall entirely on the buyers of good A. This will lead to an increase in the price paid by buyers of good A.

Similarly, since good B has a perfectly inelastic supply and a downward-sloping demand curve, the burden of the tax will fall entirely on the sellers of good B. This will lead to an increase in the price paid by buyers of good B.

However, since the demand for good B is downward-sloping, the increase in price will lead to a larger decrease in the quantity bought by buyers of good B compared to the decrease in the quantity bought by buyers of good A (whose demand is perfectly inelastic). Therefore, the price paid by buyers of good A rises by more than the price paid by buyers of good B.

Good a Has a Perfectly Inelastic Demand and an Upward-Sloping