Neither the supply of nor demand for a good is perfectly elastic or perfectly inelastic.So,imposing a tax on the good results in a ________ in the price paid by buyers and ________ in the equilibrium quantity.
A) rise; an increase
B) rise; a decrease
C) fall; an increase
D) fall; a decrease
E) a rise; no change

Question

Quizplus · Accepted Answer

If both the supply and demand are inelastic, a tax will result in a larger increase in the price paid by buyers than in the decrease in the equilibrium quantity. Therefore, the price will rise, but the equilibrium quantity will decrease slightly. This fits with option B, where the price will rise, but the equilibrium quantity will decrease. Option A is incorrect because it suggests an increase in the equilibrium quantity, which is not likely. Option C suggests a fall in the price and an increase in the equilibrium quantity, which is not likely given that neither the supply nor the demand is perfectly elastic. Option D suggests a fall in both price and quantity, which is also not likely. Finally, option E suggests a rise in price with no change in quantity, which is not likely given the inelasticity of both supply and demand.

Neither the Supply of nor Demand for a Good Is