Producers bear the entire incidence of a tax when: a. demand is perfectly elastic. b. supply is perfectly elastic. c. demand and supply are equally elastic. d. demand is perfectly inelastic. e. supply is perfectly inelastic.

A - demand is perfectly elastic

E - supply is perfectly inelastic.

Explanation:

Tax incidence refers to who bears the tax burden between the supplier and the consumer.

When demand is perfectly elastic, it means a 10% change in price would lead to a 10% change in quantity demanded.

If tax is increased, the producer would like to pass on the tax increase to consumers by increasing prices.

The producer of a good with perfect elasticity of demand knows that if he increases his price ,quantity demanded would fall by the same proportion of the increase in price.

Because of this the producer would bear the entire burden of tax.

When supply is perfectly inelastic, a change in price has no effect on quantity supplied.

The entire tax burden would be passed on to a producer that has a perfectly inelastic supply for a product.

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