Question

In a market where the supply curve is perfectly inelastic,how does an excise tax affect the price paid by consumers and the quantity bought and sold?

Answer 1

When the supply curve is perfectly inelastic or that the supply curve is a vertical line,it means that an excise tax would not change their supply as they are not responsive to the change in price therefore the supply would remain constant and the seller will bear the burden of the tax.

So,after the excise tax,the producer will bear the full burden of tax and the price received by sellers would decrease by the amount of tax whereas the consumers will still pay the same price as before and the quantity bought and sold remains same.