Question

Suppose the demand curve for a product is horizontal and the supply curve is upward sloping. If a unit tax is imposed in the market for this product,

A. sellers bear the entire burden of the tax.
B. the tax burden will be shared among the government, buyers, and sellers.
C. buyers bear the entire burden of the tax.
D. the tax burden will be shared by buyers and sellers.

Answer 1

A. sellers bear the entire burden of the tax.

Step-by-step explanation:

The demand is perfectly elastic which means that any tax will be only borne by the sellers i.e The greater proportion of taxes paid by the inelastic side of the market. It can also thought as only smaller portion of tax is paid by the elastic side of the market. If the demand is more elastic than supply, sellers are paying a greater proportion of tax. If demand is completely elastic, entire taxes paid by the seller