Final answer:
The tax on the rental price of land with perfectly inelastic supply and elastic demand will be primarily paid by the sellers, as they cannot pass the burden onto consumers through higher prices. Since consumers can choose other options and the quantity of land supplied cannot adjust, the tax incidence falls largely on landowners.
Step-by-step explanation:
The student is asking about the incidence of a tax in a market where the supply of land is perfectly inelastic, and demand is elastic, using beachfront hotels as an example. With the introduction of a 10% tax on the rental price of land, the burden of the tax falls differently on buyers and sellers depending on the elasticity of demand and supply. Since the supply of land is perfectly inelastic (suppliers cannot change the quantity supplied regardless of price), the tax incidence primarily falls on the sellers, as they cannot pass the tax onto consumers through higher prices. However, while consumers may have other choices and could respond to higher prices with reduced demand due to the elasticity of demand, the inelastic supply suggests that sellers absorb most of the tax burden. The tax incidence is illustrated by a wedge between the price consumers pay (Pc) and the price producers receive (Pp), with producers receiving less due to the tax.