Question

If the government levies an excise tax in a market whose supply curve is perfectly inelastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____.

a. consumers; zero
b. producers; zero
c. consumers; the tax revenue
d. producers; the tax revenue

Answer 1

producers; zero

Step-by-step explanation:

An inelastic supply curve means that a change in price doesn't cause a change in the quantities supplied which means that if a tax is imposed, the burden of the tax will fall completely on the producers.

On the other hand, the deadweight loss refers to the cost created by inneficiencies, for example, when taxes are imposed. In this case, as the supply curve is perfectly inelastic and the quantities don't change with a change in price, there is no deadweight loss.

According to this, the answer is that if the government levies an excise tax in a market whose supply curve is perfectly inelastic, the burden of the tax will fall completely on the producers, and the deadweight loss will equal zero.