The diagram above explains the effect of government's imposition of an indirect tax on a good characterized by zero price elasticity of demand. The tax impo...
Question 1 Report
The diagram above explains the effect of government's imposition of an indirect tax on a good characterized by zero price elasticity of demand. The tax imposed is borne
Answer Details
If a good is characterized by zero price elasticity of demand, it means that the quantity demanded of the good is not affected by changes in its price. When the government imposes an indirect tax on such a good, the tax will be borne entirely by the consumer.
This is because the producer is unable to pass on the tax to the consumer by increasing the price of the good. Since the quantity demanded of the good is not affected by its price, any increase in the price of the good due to the tax will not lead to a decrease in quantity demanded. Therefore, the producer will bear the entire burden of the tax, reducing their profit margin.
In summary, the answer is: totally by the consumer.
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