Question

The demand for cigarettes is highly inelastic. This suggests that the incidence of a higher tax on cigarettes will fall primarily on:______. A) Government. B) Cigarette sellers. C) Cigarette consumers

Answer 1

Answer: C. Cigarette consumers.

Explanation: The demand for Cigarette is highly inelastic. When tax is imposed on Cigarette by the government, sales price is increased by the full amount of tax courtesy of the producers thereby transferring the tax burden to consumers.