Question

Monthly rent New supply with a $100 tax $600 $560 Initial supply $500 - $460 - .. Demand 3,000 8,000 10,000 Number of apartments Figure 6.8 Refer to Figure 6.8. Suppose that your city imposes a tax of $100 per apartment and the supply curve is a vertical line at Q=10,000. Then: O A. consumers pay the whole amount of the tax. O B. consumers and landlords split the tax. O C. landlords pay the whole amount of the tax. OD. There is not sufficient information.

Answer 1

The incidence of tax whether levied on consumer or producer depends on the elasticity of demand and supply curve respectively.

In the above diagram the supply curve is a vertical line depicting that supply if perfectly inelastic. Hence entire burden of tax is paid by suppliers and price will remain same for the consumer.

Hence option 'c' is correct. Landlord will pay the entire amount of tax.