Suppose that the government imposes a $9 per month tax on cell phone service.If the demand curve for cell phone service is perfectly elastic and the supply curve is upward-sloping,the monthly price for cell phone service will:

Question

Quizplus · Accepted Answer

Since the demand curve for cell phone service is perfectly elastic, consumers are extremely responsive to changes in price. If the government imposes a $9 tax on the service, the entire burden of the tax will be passed onto the consumers in the form of higher prices. However, since the demand curve is perfectly elastic, any increase in price will cause the quantity demanded to fall to zero. Therefore, suppliers cannot increase the price by more than $9 if they want to sell any quantity of the service, meaning the price will increase by exactly $9 to $9 + $9 = $18 per month. As a result, the correct answer is D, the price will not change.

Suppose That the Government Imposes a $9 Per Month Tax