The buyer will pay the entire tax levied on a good when the demand for the good is ________ or when the supply of the good is ________.
A) perfectly elastic; perfectly inelastic
B) perfectly elastic; perfectly elastic
C) perfectly inelastic; perfectly inelastic
D) perfectly inelastic; perfectly elastic
E) unit elastic; unit elastic

Question

Quizplus · Accepted Answer

When the demand for a good is perfectly inelastic, it means that buyers are willing to pay any price for that good, so the entire tax will be borne by the buyer. Similarly, when the supply of a good is perfectly elastic, it means that producers are willing to supply any quantity at a given price, and so they will not absorb any of the tax, passing the full burden onto the buyer.

The Buyer Will Pay the Entire Tax Levied on a Good