Question 34
Public FinanceA tax on a commodity whose supply is perfectly inelastic is
- A.shifted completely on the consumer
- B.completely borne by the supplier
- C.divided in the ratio 60:40 between the consumer and the supplier
- D.divided half-and-half between the producer and the consumer
Show the answer and explanation
Answer: B (completely borne by the supplier)
Explanation
When supply cannot change, the price cannot rise without losing sales, so the seller bears all the tax.