If the supply curve is perfectly inelastic and the demand curve is a downward sloping straight line,what is the effect of a consumer ad valorem tax on equilibrium price and quantity?
A) Price remains unchanged and quantity increases.
B) Price decreases and quantity increases.
C) Price decreases and quantity remains unchanged.
D) Price and quantity decrease.

Question

Quizplus · Accepted Answer

In this scenario, the supply curve is perfectly inelastic, meaning that producers are unable to adjust the quantity supplied in response to the tax. As a result, the entire burden of the tax falls on the consumers, causing them to decrease their quantity demanded at any given price. This shifts the demand curve downward, causing a decrease in the equilibrium quantity. However, since the supply curve is perfectly inelastic, the equilibrium price remains unchanged. Therefore, the correct answer is C. Price decreases and quantity remains unchanged.

If the Supply Curve Is Perfectly Inelastic and the Demand