A tax is imposed on orange juice. Consumers will bear the full burden of this tax if the:
A)price elasticity of demand for orange juice equals 1.0.
B)demand for orange juice is perfectly elastic.
C)demand for orange juice is unit elastic.
D)demand curve for orange juice is perfectly inelastic.

Question

A tax is imposed on orange juice. Consumers will bear the full burden of this tax if the:
A)​price elasticity of demand for orange juice equals 1.0.
B)​demand for orange juice is perfectly elastic.
C)​demand for orange juice is unit elastic.
D)​demand curve for orange juice is perfectly inelastic.

Quizplus · Accepted Answer

When demand for orange juice is perfectly inelastic, consumers will bear the full burden of the tax because they have no other options to substitute for the taxed good. When demand is elastic or unit elastic, producers will absorb some of the tax burden by reducing prices to prevent a large decrease in demand. When demand is perfectly elastic, producers will bear the full burden of the tax as consumers will switch to a substitute good.

A Tax Is Imposed on Orange Juice