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

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Quizplus · Accepted Answer

Since the demand for picture frames is highly inelastic, a tax of $1 per frame will be primarily borne by the consumers. Therefore, the effective price received by sellers will decrease by less than $0.50. This is because the price increase caused by the tax is unlikely to decrease the quantity demanded significantly, thereby leaving sellers with a larger share of the burden of the tax. On the other hand, since the supply of picture frames is highly elastic, producers will be able to adjust their output quickly and cheaply in response to the price change caused by the tax. This will result in a larger decrease in the price received by sellers. However, since the demand is inelastic, the decrease will still be less than $0.50. Therefore, choice A is the best answer.

Suppose That the Demand for Picture Frames Is Highly Inelastic,and