Asked by Taran Thiara on Jul 17, 2024
Verified
If the demand for a product is perfectly elastic and supply is upsloping,a $1 excise tax per unit on suppliers will:
A) not raise price at all.
B) lower price by $1.
C) raise price by more than $1.
D) raise price by $1.
Perfectly Elastic
Describes a situation in which the quantity demanded or supplied of a good responds infinitely or extremely to changes in its price.
Excise Tax
A tax applied on specific goods, such as tobacco and alcohol, usually to discourage their use or raise government revenue.
- Understand the significance of elasticity in determining the effect of taxes on price and quantity in the market.
Verified Answer
KD
Keondre DotsonJul 18, 2024
Final Answer :
A
Explanation :
If the demand for a product is perfectly elastic, it means that consumers are very responsive to a change in price. Thus, if suppliers try to raise the price by passing on the $1 excise tax to consumers, they will simply switch to a cheaper substitute product. As a result, the supplier cannot raise the price and will end up bearing the entire tax burden themselves. Therefore, the price will not increase at all.
Learning Objectives
- Understand the significance of elasticity in determining the effect of taxes on price and quantity in the market.