Question

Suppose that the government imposes a $10 tax on Humbugs. The pre-tax price of Humbugs was $50, and neither supply nor demand is perfectly elastic or perfectly inelastic. If the government imposes the tax on sellers, which of the following is true? A) The full amount of the tax will be paid by the sellers. B) The full amount of the tax will be paid by the buyers. C) The equilibrium quantity of Humbugs will not change. D) The price of Humbugs will rise to $60. E) The price of Humbugs will rise by less than $10.

Answer 1

E. The price of Humbugs will rise by less than $10.

Step-by-step explanation:

The relative elasticity of the supply and demand curves.