If supply is perfectly inelastic, a tax increase is borne __________. only by th

Question

If supply is perfectly inelastic, a tax increase is borne __________.

only by the buyer

only by the seller

mostly by the buyer

mostly by the seller

A tax will __________.

lower price and raise supply

lower price and lower supply

raise price and lower supply

raise price and raise supply

When demand is relatively inelastic and supply is relatively elastic, the burden of a tax will be borne __________.

mainly by sellers

mainly by buyers

equally between sellers and buyers

it is impossible to determine the relative burdens of the tax

How much is the tax?

$.35

$.50

$.65

$1.00

$1.50

Explanation / Answer

1. "1. only by the buyer" 2. This one is a bit tricky. A tax will raise the supply curve, no doubt about that. It lowers the pre-tax price (the amount received by the seller), but it raises the post-tax price (the amount paid by the buyer). It depends on which "price" your textbook/instructor are talking about. If I had to make a guess, they're probably talking about the post-tax price, which goes up (Answer = #4), because that's the way they've drawn the picture for the next problem. 3. "1. mainly by sellers" 4. "4. $1.00"

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