In perfectly competitive industries with identical firms, consumers always end up paying the entire burden of a per-unit tax on output in the long run.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, firms have no market power to pass on the tax burden to consumers in the form of higher prices. Instead, they will lower their production and supply, causing the market price to increase until the consumers bear the full burden of the tax. This occurs in the long run after all firms have adjusted to the tax.

In Perfectly Competitive Industries with Identical Firms, Consumers Always End