If a $1 sales tax is imposed on the sale of a CD,and neither the demand nor the supply is perfectly elastic or perfectly inelastic,then the price of a CD paid by consumers will
A) increase by $1 and fewer CDs will be bought.
B) increase by less than $1 and fewer CDs will be bought.
C) not change and the same number of CDs will be bought.
D) increase by $1 and the same number of CDs will be bought.
E) increase by more than $1 and fewer CDs will be bought.

Question

Quizplus · Accepted Answer

When a sales tax of $1 is imposed on the sale of a CD, the supply curve shifts leftward by the amount of the tax. This means that the price paid by consumers will increase, but by less than $1 because the burden of the tax is shared between consumers and producers. The new equilibrium price will be higher than the old price, but not by the full amount of the tax. As a result, the quantity of CDs bought will decrease, but not by a large amount. This is because the demand curve is not perfectly elastic or inelastic, meaning that consumers are somewhat responsive to changes in price. Therefore, the best choice is B.

If a $1 Sales Tax Is Imposed on the Sale