In Foodieland, if the demand for chocolate is perfectly inelastic, what happens when a tax is imposed?

In a scenario where the demand for chocolate is perfectly inelastic, it means that consumers will buy the same quantity of chocolate regardless of its price. When a tax is imposed on a good with perfectly inelastic demand, the entire burden of the tax is passed on to the consumers. Since they are not responsive to price changes and will continue to purchase the same quantity, sellers can increase the price by the amount of the tax without losing any sales.

As a result, buyers absorb the full cost of the tax, which effectively means that the market price of chocolate increases by the amount of the tax implemented. In this way, consumers do not change their behavior in response to the tax, resulting in the tax burden falling entirely on them. This situation highlights the concept of tax incidence, where the elasticity of demand plays a significant role in determining how the tax burden is distributed.