Suppose that the government imposes a $10 per month tax on cell phone service.If the demand curve for cell phone service is perfectly inelastic and the supply curve is upward-sloping,the monthly price for cell phone service will increase by:

Question

Quizplus · Accepted Answer

If the demand curve for cell phone service is perfectly inelastic, it means that consumers are willing to pay the same price for the service regardless of the tax imposed on it. Therefore, the entire burden of the tax will fall on the consumers, and not on the producers. Since the supply curve is upward-sloping, the price for cell phone service will increase by the full amount of the tax, which is $10 per month. Hence, the correct answer is C.

Suppose That the Government Imposes a $10 Per Month Tax