Asked by Charlene Wright on May 14, 2024
Verified
If the demand for good X is perfectly inelastic and a tax is levied on the producers of each unit:
A) consumers pay the entire tax,and deadweight loss will occur because the equilibrium quantity of good X falls.
B) consumers pay the entire tax,and there is no deadweight loss because the equilibrium quantity of good X remains constant.
C) consumers and producers share the burden of the tax,and there is no deadweight loss because the equilibrium quantity of good X remains constant.
D) producers pay the entire tax,and deadweight loss will occur because the equilibrium quantity of good X falls.
Perfectly Inelastic
A situation where the demand or supply for a good is completely unresponsive to changes in price.
Deadweight Loss
A loss of economic efficiency that can occur when the optimal allocation of resources is not achieved, often due to market failures or government interventions.
Equilibrium Quantity
The quantity of goods or services that is supplied and demanded at the equilibrium price.
- Analyze the effects of tax elasticity on deadweight loss and tax revenue.
Verified Answer
TV
Twinkle VinitaMay 20, 2024
Final Answer :
B
Explanation :
When demand is perfectly inelastic, consumers are willing to pay any price for the good, meaning they bear the entire tax burden. However, because their demand does not change with price, the quantity demanded remains constant, resulting in no deadweight loss.
Learning Objectives
- Analyze the effects of tax elasticity on deadweight loss and tax revenue.