Question

Assume a perfectly competitive industry where the firms are identical, each with U-shaped short run and long run average cost curves. In the short run, consumers bear none of the burden of a “per firm” tax, while in the long run, consumers bear the entire burden. Explain why the statement is True, False, or Uncertain according to economic principles.

Answer 1

The statement is True. In the short run consumers bear none of the burden of a per firm tax because actually firms could not implement tax in price as long as demand is very elastic.