Question

True of False, Explain

When the government introduce a sale tax in a monopolistic market, the monopolist may use its market power to shift all the taxation burden on consumer.

Answer 1

False.

Monopolistic can not shift the whole tax to customers because demand curve of monopolistic firm is downward sloping. If demand was vertical line or perfectly inelastic then firm could have shift the whole burden. But usually monopolistic firm faces downward sloping demand curve it have to take some burden on him. It depends on the elasticity of demand that how much burden is shared by both. Less elastic demand have more burden on consumers and more elastic demand have more burden on monopolistic.

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