Suppose the government imposes a $9 per month tax on cell phone service.If the demand curve for cell phone service is perfectly elastic and the supply curve is upward-sloping,the monthly price for cell phone service will:

A) increase by $4.50.
B) increase by more than $9.
C) increase by $9.
D) not change.

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Melinda Jones · Accepted Answer

Final Answer : D, Explanation :  If the demand curve for cell phone service is perfectly elastic, it means that consumers are very responsive to price changes and any increase in price will result in a significant decrease in demand.On the other hand, if the supply curve is upward-sloping, it means that suppliers are willing to sell more at higher prices.When the government imposes a $9 per month tax, suppliers will have to pay the tax and as a result, will increase the price of cell phone service to cover their costs.However, since the demand curve is perfectly elastic, any increase in price will result in a complete loss of demand.Therefore, the suppliers cannot increase the price without losing all their customers.As a result, the price of cell phone service will not change, and consumers will continue to pay the same price as before the tax was imposed.

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