Suppose the government decides to enact a new tax on T-shirts. What will happen in the market for T-shirts? (Note: Neither the supply curve nor the demand curve for T-shirts is perfectly inelastic.)

- The price buyers will pay will be higher

- The tax on T shirts will cause a dead weight loss

- There will be a decrease in T shirts sold

Explanation:

In this scenario when curve for demand and is not perfectly inelastic it means that with an increase in price there is a fall in the amount of a good demanded.

So when tax is imposed on the T shirts the producers will have a higher cost of production. This is transfered to the buyer in form of higher prices.

Since the increase in price reduces quantity demanded, the buyer will buy less T Shirts at the higher price

Dead weight loss is a cost to society as a result of inefficiency non the market.

When taxes are applied supply and demand go out of equillibrum as prices are now higher. Therefore tax imposition causes a dead weight loss.