Question

Seeing a golden opportunity to raise revenue, the city of Boston levies a per ticket tax of $5 to be paid by the ticket buyer. Boston sports fans, a famously civic-minded lot, send in the $5 per ticket. True or False: The entire tax burden falls on the team’s owners because supply is perfectly inelastic.

Answer 1

Answer:

TRUE

Explanation:

When supply is perfectly inelastic, the supply curve is vertical as shown in the attached plot. Thus, the tax that shifts the supply curve upward would have no effect on the equilibrium quantity or price paid by consumers. Since equilibrium quantity or price paid by consumer don't change there's no burden on them. However, no  team's owners would receive a lower after tax price and thus bearing the entire tax burden.