Final answer:
The incidence of a state sales tax refers to who bears the economic burden of the tax. It depends on the elasticity of demand and supply in the market. Buyers and sellers share the tax burden in markets with inelastic demand and supply, but the burden falls more heavily on one party when either the demand or supply is more elastic.
Step-by-step explanation:
The incidence of a state sales tax levied on the purchase of retail goods refers to who bears the economic burden of the tax. In a market where both the demand and supply are inelastic, buyers and sellers share the burden of the tax. However, when either the demand or supply is more elastic, the burden falls more heavily on one party. For example, if the supply is more elastic than the demand, consumers will bear a larger portion of the tax burden.
When a tax is imposed, the price paid by consumers increases, and the price received by sellers decreases. This change in prices determines the incidence, or the division of the tax burden between buyers and sellers. Factors such as elasticity of demand and supply, as well as the initial equilibrium price, play a role in determining the tax incidence.
Overall, the incidence of a state sales tax depends on the specific market conditions and the relative elasticity of demand and supply. It is important to consider the impact of taxes on both consumers and sellers when analyzing the distribution of the tax burden.