PRC-3 · Chapter 11 · Question 14 of 57
A firm wants to shift the tax burden of a new government levy almost entirely onto its customers. Under which specific market condition will the firm be most successful in doing this?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) When the demand for its product is highly inelastic
Explanation
If demand is highly inelastic, consumers will not reduce their purchases much when the price goes up. This allows the firm to pass the tax burden to consumers via higher prices.
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