Neither the supply of nor demand for a good is perfectly elastic or perfectly inelastic.So,imposing a tax on the good results in a ________ in the price paid by buyers and ________ in the equilibrium quantity.

Question

Quizplus · Accepted Answer

If the supply or demand for a good is perfectly elastic, then any increase in price would result in no one buying the good anymore. If it was perfectly inelastic, then the price increase would not affect the amount of the good purchased.

Since neither condition exists, there will always be some response to a price change. If a tax is imposed on a good, the price paid by buyers will increase (since some of the tax burden is passed on to the consumer), but the equilibrium quantity will decrease (since some consumers will no longer want to pay the higher price).

Option B is the correct answer, as it shows a rise in price paid by buyers and a decrease in equilibrium quantity.

Neither the Supply of nor Demand for a Good Is