Question 45
Public FinanceA government imposes an indirect tax on a good characterized by zero price elasticity of demand. The tax imposed is borne
- A.totally by the consumer
- B.totally by the producer
- C.equally by both the consumer and the producer
- D.by the government.
Show the answer and explanation
Answer: A (totally by the consumer)
Explanation
When demand is perfectly inelastic, buyers purchase the same quantity at any price, so the seller can pass the whole tax on to consumers.