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WAEC Economics 2007 Question 15

Question 15

Elasticity

In a situation where demand is perfectly elastic, imposition of a tax on a commodity to raise its price will result in

  1. A.consumers increasing their demand for the product
  2. B.consumers' demand for the product remaining unchanged
  3. C.consumers shifting completely to substitute products
  4. D.suppliers increasing the supply of the product.
Show the answer and explanation

Answer: C (consumers shifting completely to substitute products)

Explanation

With perfectly elastic demand any rise in price makes buyers abandon the good for substitutes.