Answer to Question #73332 in Microeconomics for PANKAJ BHATT
This question is about the incidence of tax falling wholly on the producer. However it's mostly to do with the diagram of perfectly inelastic supply curve. In my course book, the book stated "If the supply curve is perfectly inelastic, then the supply curve after imposition of the tax will be the same as the one before." My question is why will the supply curve not shift and stay in the same place?
With an ideally elastic curve of supply on the market, the quantity of goods sold by the manufacturer is unchanged at the price increase for the product. Therefore, if the tax is imposed entirely on the manufacturer, the price of the goods will increase, but the quantity of goods sold will not change