If the supply of milk in Nexus City is perfectly elastic, what will occur if a tax is imposed?

In a perfectly elastic supply situation, suppliers are willing to supply any quantity of milk at a certain price, but they will not supply any at a higher price. When a tax is imposed on the supply of milk, the price that suppliers receive effectively decreases because they must now account for the tax when setting their prices.

Since the supply is perfectly elastic, suppliers cannot pass any of the tax burden onto buyers by increasing prices. If they tried to raise the price to account for the tax, buyers would simply purchase from other suppliers who are not raising their prices. As a result, the entire burden of the tax falls onto the buyers, who must pay the same price as before the tax was imposed, while the suppliers receive a lower effective price after the tax is deducted.

Therefore, in this scenario, it is accurate to say that buyers bear the tax burden. The nature of perfectly elastic supply means that any attempt to shift the tax burden would result in a significant loss of sales for suppliers, reinforcing that consumers will ultimately shoulder the cost of the tax through the price they pay.