A $2.00 increase in the size of a tax on a good will only cause the price for buyers to increase by $2.00 if
A) demand is perfectly inelastic.
B) demand is perfectly elastic.
C) demand is unit elastic.
D) demand is inelastic, but not perfectly inelastic.
E) demand is elastic, but not perfectly elastic.

Question

Quizplus · Accepted Answer

When demand is perfectly inelastic, consumers are completely unresponsive to price changes, meaning they will pay any price for the good. Therefore, a $2.00 tax increase would be fully absorbed by buyers, leading to a $2.00 increase in the price they pay.

A $200 Increase in the Size of a Tax on a a Good