Suppose That Government Imposes a Specific Excise Tax on Product

Multiple Choice

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1) . If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the consumers pay $.25, we can conclude that the

A) supply of X is highly inelastic.
B) supply of X is highly elastic.
C) demand for X is highly inelastic.
D) demand for X is highly elastic.