Assume the supply curve for product X is perfectly elastic and that government imposes a $2 per unit excise tax.We can conclude that the resulting:

Question

Quizplus · Accepted Answer

When the supply curve is perfectly elastic, the entire burden of the excise tax will be borne by the producers. As a result, their costs will increase by the full $2 per unit, and they will reduce output by the amount of the tax. The amount of the reduction in output will be greater the more elastic the demand curve because consumers will be more sensitive to price changes and will reduce their quantity demanded by a larger percentage for any given increase in price. Therefore, choice B is the best answer.

Assume the Supply Curve for Product X Is Perfectly Elastic