Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the consumers pay $.25, we can conclude that the:

A. supply of X is highly inelastic.
B. supply of X is highly elastic.
C. demand for X is highly inelastic.
D. demand for X is highly elastic

answer:

A. supply of X is highly inelastic.