If an excise tax is placed on a product that has a price elasticity of demand equal to zero, then the
A) entire tax will be paid by the consumer
B) entire tax will be paid by the producer
C) consumer and producer will each pay a share of the tax
D) incidence of the tax cannot be determined unless we know the coefficient of price elasticity of supply
E) tax is progressive

Question

Quizplus · Accepted Answer

When the price elasticity of demand is equal to zero, it means that the quantity demanded does not change regardless of the price change. Therefore, consumers will bear the entire burden of the excise tax, as their purchasing behavior remains unchanged despite the price increase.

If an Excise Tax Is Placed on a Product That