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

With a perfectly elastic supply curve, producers can easily adjust their output to avoid the tax burden, so the entire tax will be passed on to consumers in the form of a higher price. The effect of the tax on quantity demanded will depend on the price elasticity of demand: the more elastic the demand curve, the greater the decrease in quantity consumed (and produced). Thus, option C is correct.

Assume the Supply Curve for Product X Is Perfectly Elastic