Suppose that an excise tax of $1 is levied on the sale of a bottle of wine. Usually this tax will be paid
A) entirely by the seller if the consumer demand for wine is perfectly elastic
B) entirely by the consumer if the supply of wine is perfectly inelastic
C) by both the seller and the consumer, with the greater portion of the tax being paid by the consumer if the demand for wine is relatively inelastic
D) neither by the seller nor by the consumer

Question

Quizplus · Accepted Answer

The greater portion of the tax will be paid by the consumer if the demand for wine is relatively inelastic. This is because the consumer will be less likely to reduce their consumption of wine in response to the tax, so the seller will be able to pass on a larger portion of the tax to the consumer.

Suppose That an Excise Tax of $1 Is Levied on the Sale