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JAMB Economics 1999 Question 45

Question 45

Public Finance

The price of a good will not be affected by the imposition of a sales tax on it if the

  1. A.supply is inelastic
  2. B.demand is inelastic
  3. C.supply is perfectly elastic
  4. D.demand is perfectly elastic.
Show the answer and explanation

Answer: D (demand is perfectly elastic.)

Explanation

If demand is perfectly elastic, buyers would buy nothing at a higher price, so the seller cannot raise the price and must bear the whole tax.