<p>Suppose that demand is perfectly inelastic and a city tax of $5 is imposed on the consumers. Where will the burden of the tax be on? Why? What if the demand is perfectly elastic? </p>
<p>Thanks.</p>
<p>If demand was perfectly inelastic, the consumers would not care if prices went up, because the good or service is a necessity. so consumers bear the entire tax burden of $5.</p>
<p>if it was perfectly elastic, the consumers would respond even to the most significant price change by consuming less. thus the suppliers would bear the entire revenue.</p>
<p>also remember that whenever a supply or demand is perfectly elastic, the government will gain the most tax revenue possible since the equlibrium quantity does not decrease.</p>
<p>Thanks thatguyinclass!
But how do you reflect the situations using graphs? Will the perfectly inelastic demand line move to the left and the perfectly elastic one stay the same?</p>