When demand is perfectly inelastic, the burden of a tax is primarily absorbed by?

In the case of perfectly inelastic demand, consumers' quantity demanded remains unchanged regardless of price changes. This characteristic means that consumers will purchase the same amount of a good or service even if the price rises due to a tax imposed on it.

When a tax is levied, the price consumers have to pay increases because producers will pass on the tax to consumers. However, since demand is perfectly inelastic, consumers have no choice but to pay the higher price because they will continue to buy the same quantity regardless of the cost. Therefore, the economic burden of the tax falls primarily on consumers, as they absorb most, if not all, of the tax increase in the form of higher prices, while producers are less affected in terms of quantity sold.

In contrast, if demand were elastic, consumers would reduce their quantity demanded significantly in response to a price increase, which would shift some of the tax burden to producers as they would need to lower their prices or absorb some of the tax to retain customers.

Thus, the correct understanding of perfectly inelastic demand is key to recognizing why consumers bear the burden of the tax.