Answer to Question #281502 in Microeconomics for Semon

Question

If the supply curve is perfectly elastic and demand is linear and downward sloping. what is tne ettect of a sl specific tax collected from producers on equilibrium price and quantity, and wnat is the incidence on consumers? Why?

Answer 1

Solution:

The price elasticity of supply for perfectly elastic supply is infinite, which means that the quantity supplied at a given price is unlimited, but no quantity can be supplied at any other price.

The specific tax will result in an increase in the equilibrium price and a decrease in the equilibrium quantity. This is because the specific tax will cause the prices of the goods to increase, which will result in a decrease in the quantity demanded for those goods by consumers.

 

Consumers will bear the entire burden of the tax since the supply curve is perfectly elastic and the demand is linear and downward sloping.