If the supply of a commodity is perfectly inelastic, a unit tax on that commodity is likely to be borne mainly by:
Correct answer: A. The producers or suppliers
- A. The producers or suppliers
- B. The final consumers
- C. Foreign governments
- D. Commercial banks
Explanation
With perfectly inelastic supply, suppliers cannot reduce the quantity supplied in response to the tax. The resulting fall in the net price received by suppliers places most of the tax burden on them.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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