If the demand for a commodity is perfectly elastic, the incidence of a tax on that commodity will be, other things being equal, entirely on the_______

1. Analyze the question We are asked who bears the full burden (incidence) of a tax when demand is perfectly elastic.

2. Explain the concept

• Tax incidence means who actually pays the tax, the buyer or the seller.
• The burden falls more heavily on the side of the market that is less responsive to price changes (the more inelastic side).
• Perfectly elastic demand (elasticity = ∞) means the demand curve is a horizontal line. Buyers will purchase any amount at the market price, but if the price rises even slightly, they buy nothing and switch to substitutes.

3. Step-by-step solution

1. The tax is imposed on the commodity, and the seller wants to raise the price to pass it on.
2. Because demand is perfectly elastic, any price increase makes quantity demanded fall to zero.
3. The seller therefore cannot pass any of the tax on to buyers. The market price must stay the same.
4. The seller has to absorb the whole tax, receiving a lower net price (market price − tax).

Result: Buyer's share of the tax = 0%, seller's share = 100%.

4. Answer The incidence falls entirely on the seller, which is option B.

Options C and D (government and local authority) are the collectors of the tax, not the ones who bear it.

5. Exam tip Remember: "The more elastic side runs away from the tax, and the more inelastic side pays it."

• Perfectly elastic demand → seller pays all.
• Perfectly inelastic demand (e.g. essential drugs) → buyer pays all.