Suppose a Supplier of a Good Has a Perfectly Inelastic

question 43

Essay

Suppose a supplier of a good has a perfectly inelastic supply curve.Now assume a unit tax is placed on the good and that the demanders of the good are legally required to pay it.Who will bear the burden of the tax,the supplier or the demanders or some combination? Draw a picture in explaining your answer.

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Definitions:

Periodic Inventory Method

An inventory accounting method where the inventory balance is updated at specific intervals rather than after each purchase or sale.

Accounts Payable

Liabilities owed by a business to its suppliers or creditors for goods and services received but not yet paid for.

Discount Period

The timeframe during which a buyer can take advantage of a purchase discount for early payment.

Invoice Price

The price indicated on an invoice which is the original cost of the product or service before any discounts or increases applied.