Question: 1. Suppose that Demand is perfectly elastic and Supply is inelastic. Which of the following is true for a tax/unit?

A) Equilibrium price doesn't change and equilibrium quantity doesn't change

B) Equilibrium price doesn't change and equilibrium quantity decreases

C) Equilibrium price increases by less than the tax and equilibrium quantity doesn't change

D) Equilibrium price increases by less than the tax and equilibrium quantity falls

E) Equilibrium price increases by the amount of the tax and equilibrium quantity falls

2. Suppose that the world output of wheat jumps this year due to weather that favours more output by individual farmers. If demand is inelastic, which of the following is true?

A) Profits fall for farmers because total revenue decreases and total cost increases

B) Profits fall for farmers because total revenue decreases more than total cost decreases

C) Profits rise for farmers because total revenue increases and total cost decreases

D) Profits rise for farmers because total revenue increases more than total cost increases

E) Profits may rise or fall because total revenue may rise or fall