Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The price will rise significantly, and quantity sold will decrease sharply.
B
The price will rise slightly, and quantity sold will decrease only slightly.
C
The price will remain unchanged, and quantity sold will decrease significantly.
D
The price will fall, and quantity sold will increase.
Understanding the Answer
Let's break down why this is correct
Answer
When the demand for a product is inelastic, it means that consumers will continue to buy nearly the same amount of the product even if the price increases. If a tax is imposed on this product, producers are likely to pass most of that tax onto consumers in the form of higher prices. For example, if a tax of $1 is added to a bottle of soda, and the demand is inelastic, the price might rise from $2 to $2. 50, and people will still buy the soda because they really want it. As a result, the quantity sold may not change much, even though consumers are paying more.
Detailed Explanation
When demand is inelastic, people still buy the product even if the price goes up. Other options are incorrect because This answer suggests a big price rise and sharp drop in sales; This option says the price stays the same, which isn't true.
Key Concepts
inelastic demand
Topic
Elasticity and Tax Incidence
Difficulty
easy level question
Cognitive Level
understand
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