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WAEC Economics 1997 Question 34

Question 34

Public Finance

When the government imposes a unit tax on a commodity with perfectly inelastic demand, the

  1. A.tax is borne entirely by the seller
  2. B.tax is shared equally between the seller and the buyer
  3. C.seller bears 70% and the consumer bears 30% of the tax
  4. D.tax is borne entirely by the consumer
  5. E.tax is borne by nobody
Show the answer and explanation

Answer: D (tax is borne entirely by the consumer)

Explanation

With perfectly inelastic demand, buyers purchase the same quantity at any price, so the whole tax is passed on to them.