Per-Unit Tax Shifts Supply Upward, Increasing Elasticity

Steps:

• Identify the tax as per-unit ($5), shifting supply curve vertically upward by$5, parallel to original.
• Note original supply is inelastic (steep slope, e<1) per diagram.
• Recall supply elasticity formula: e_s = (P/Q) / (dP/dQ); slope (dP/dQ) unchanged.
• After shift, at same Q, P rises by $5, raising e_s from <1 to >1.

Why D is correct:

• Vertical shift keeps slope constant but boosts e_s via higher P in formula, turning inelastic supply elastic.

Why the others are wrong:

• A: Tax increases, doesn't decrease, elasticity.
• B: No mechanism shifts to exactly unitary elasticity.
• C: Original isn't unitary; tax doesn't start from there.

Final answer: D