Perfect competition question In a competitive market, there is currently no tax.

Question

Perfect competition question In a competitive market, there is currently no tax. and the equilibrium price is $60. The market has a downward-sloping demand curve. The government is about to impose an execise tax to $4 per unit. In the new equilibrium with the tax. what price will producers receive and consumers pay if the supply curve is perfectly elastic? The price producers receive remains the same ($60). and the price consumers pay rises from $60 to $64. The price producers receive remains the same ($60). and the price consumers pay rises from $60 to $68. The price producers receive rises from $60 to $64. and the price consumers pay remains the same ($60). The price producers receive rises from $60 to $68. and the price consumers pay remains the same ($60)

Explanation / Answer

Ans: a

Explanation: Perfectly elastic supply means that if the price of the product goes down, suppliers will not supply any quantity but if the price goes up, they will supply essentially an infinite amount. In such a case, let's imagine a sales tax is imposed on that product. If the seller bears the burden of the tax, they will go out of business because they are already operating at a point where any loss in profit means that they will be losing money (so they're making zero economic profit and if things get worse, they lose money). In this situation, if get a new tax you, as the supplier, must pass the cost on to your customers.

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