Suppose that the demand for picture frames is elastic and the supply of picture frames is inelastic.A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by

Question

Quizplus · Accepted Answer

Since the demand for picture frames is elastic, a tax will cause a decrease in the quantity demanded for picture frames, and since the supply is inelastic, the quantity supplied will only decrease slightly. As a result, the burden of the tax will be shared by both buyers and sellers. The effective price received by sellers will decrease by an amount somewhere between the full $1 tax and the amount of the tax that buyers absorb, which is less than $0.50. Therefore, the correct choice is C, between $0.50 and $1.

Suppose That the Demand for Picture Frames Is Elastic and the Supply