Question

Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers pay sellers for this good, the amount buyers are out of pocket (including any tax payments they make), the amount sellers receive (net of any tax payments they make), and the quantity of the good sold?

Answer 1

Step-by-step explanation:

It is given that the government removes a tax paid by the buyers of a good and levies a same amount of tax on the sellers of that particular good.

This change made by the government in tax policy increases the amount to be paid by the buyers to the sellers for the good they bought but the final amount that the buyers pay for the good remains the same.

This is because in the initial case, the buyers pay less to the sellers and used to pay taxes to the government. The total amount or the net amount after the payment of taxes, the sellers receive also do not change. The quantity of goods that are sold also remains the same. The outcome will be same no matter who pays.