Final answer:
When the demand for luxury cars is perfectly inelastic, the entire $500 tax imposed by the government will be passed on to consumers, leading to a $500 increase in the price paid by consumers.
Step-by-step explanation:
If the government places a $500 tax on luxury cars and the demand curve for luxury cars were perfectly inelastic, the price paid by consumers would rise by the entire amount of the tax, which is $500. This is because when demand is perfectly inelastic, consumers are willing to pay any price for the product, and their quantity demanded does not change with a change in price.
In this scenario, no matter how high the price goes due to taxation, consumers will still purchase the same amount of luxury cars, which in turn allows sellers to pass the entire cost of the tax onto consumers.