If supply is perfectly inelastic and demand is relatively elastic, the incidence of an excise tax
A) falls primarily on consumers.
B) falls entirely on producers.
C) is shared evenly by consumers and producers.
D) falls entirely on consumers.

Question

Quizplus · Accepted Answer

When supply is perfectly inelastic, it means that producers cannot change the quantity supplied regardless of the price change. Therefore, producers bear the entire burden of an excise tax, as they cannot pass any of it onto consumers through price adjustments.

If Supply Is Perfectly Inelastic and Demand Is Relatively Elastic