WAEC Economics 2014 Theory — Question 21

Model answer

With a perfectly inelastic demand (vertical demand curve), the entire burden of the tax is passed on to the consumer. Price rises by the full amount of the tax, while the quantity demanded remains unchanged. [Diagram: vertical demand curve D; supply curve shifts from S to S+tax; price rises from P₀ to P₁ by the full tax amount; quantity remains at Q₀]