Question on: JAMB Economics - 1995
A
totally by the consumer
B
totally by the producer
C
equally by both the consumer and the producer
D
by the the government
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Correct Option: A
The diagram illustrates that the demand curve is perfectly inelastic (vertical). When an indirect tax is imposed on a good with perfectly inelastic demand, the entire burden of the tax falls on the consumer. This is because consumers are willing to pay any price to obtain the good, so the price increases by the full amount of the tax.
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