Question

If the supply curve is perfectly inelastic, the burden of a tax on suppliers is borne: a. entirely by the suppliers. b. entirely by the consumers. c. mostly by the suppliers and partly by the consumers if the demand curve is inelastic. d. partly by the suppliers and mostly by the consumers if the demand curve is elastic.

Answer 1

Answer:

Option (a) is correct.

Explanation:

The burden of a tax is entirely borne by the suppliers if the supply curve is perfectly inelastic. The burden of a tax falls more on a person which is having relatively inelastic curve.

For example: A government imposes a tax in a market of beachfront hotels with an inelastic supply curve. There is no other option available for the sellers than to accept the lower price for the hotels, here the taxes are not affecting the equilibrium quantity. Therefore, the entire burden of tax falls on the suppliers.

Suppose that if the demand curve is more inelastic than the supply curve then  most of the tax burden falls on the consumers and if the supply curve is more inelastic than the demand curve then most of tax burden falls on the sellers.