Which of the following statements accurately describes the concept of Tax Incidence when the supply curve for the taxed good is perfectly elastic (ES=∞)?

Solution: The general rule for tax incidence is: The party with the relatively more inelastic (less responsive) curve bears the greater share of the tax burden. · If the Supply Curve is Perfectly Elastic (ES=∞), it means suppliers are highly sensitive to price changes and will supply zero quantity unless they receive the initial pre-tax price. · In this extreme case, producers can shift the entire burden of the tax forward to consumers. The price paid by consumers will increase by the full amount of the tax, meaning the consumers bear 100% of the economic burden.