When a per unit tax is imposed on an industry characterized by a perfectly inelastic supply curve:
A)producers pay the full amount of the tax.
B)the output goes to zero.
C)consumers and producers share the tax.
D)consumers pay the full amount of the tax.

Question

Quizplus · Accepted Answer

When a per unit tax is imposed on an industry characterized by a perfectly inelastic supply curve, producers pay the full amount of the tax. This is because the perfectly inelastic supply curve means that the quantity supplied does not change in response to changes in price. Therefore, the producers cannot pass on the tax to consumers by raising prices.

When a Per Unit Tax Is Imposed on an Industry