Suppose the supply of apartments in Minneapolis is perfectly elastic.The effect of a $100 per month tax on all apartments is that
A) landlords pay none of the tax and there is a surplus of apartments.
B) landlords pay all of the tax and suffer all of the deadweight loss.
C) landlords pay all of the tax and no changes take place in the quantity of apartments supplied.
D) renters pay all of the tax.
E) the government collects no tax revenue because the supply is perfectly elastic.

Question

Quizplus · Accepted Answer

Since the supply of apartments is perfectly elastic, the tax burden will be borne entirely by the renters in the form of higher rental prices. Landlords will not pay any portion of the tax since they can simply increase the rent to pass the cost onto renters. Thus, choice D is the best answer.

Suppose the Supply of Apartments in Minneapolis Is Perfectly Elastic