Neither the demand nor the supply of sugar is perfectly elastic or inelastic. If the government imposes a 5 percent tax on sugar, the
A)price of sugar falls by 5 percent.
B)price of sugar increases by less then 5 percent.
C)price of sugar does not change.
D)quantity of sugar increases.
E)price of sugar rises by 5 percent.

Question

Quizplus · Accepted Answer

Since both the demand and supply of sugar are not perfectly elastic or inelastic, a tax on sugar will lead to a shift in the supply or demand curve, resulting in a new equilibrium price and quantity. The price of sugar will increase but not by the full amount of the tax since some of the tax burden will be borne by consumers and some by producers. Therefore, the price of sugar will increase by less than 5 percent.

Neither the Demand nor the Supply of Sugar Is Perfectly