Tax incidence refers to the distribution of the tax burden between buyers and sellers in a market. Which of the following scenarios correctly illustrates the concept of tax incidence in a perfectly inelastic demand situation?
1
The burden of tax is shared equally between buyers and sellers, regardless of demand elasticity
2
Sellers bear the full tax burden since they cannot pass any of it to buyers
3
Buyers bear the full tax burden since the quantity demanded does not change with price
4
The government absorbs part of the tax burden by offering subsidies to sellers