Question

When a tax is imposed on a good, the buyer and seller of that good share the burden,

a. provided that a portion of the tax is levied on the buyer, with the remainder levied on the seller.
b. regardless of how the tax is applied.
c. provided that the tax is collected on the buyer.
d. provided that the tax is collected on the seller.

Answer 1

When a tax is imposed on a good, the burden is shared between the buyer and seller based on the elasticity of demand and supply.

Step-by-step explanation:

The tax burden is shared between the buyer and seller of a good when a tax is imposed on it. The division of the tax burden depends on the elasticity of demand and supply. If demand is more inelastic than supply, the burden falls more on the buyers. On the other hand, if supply is more inelastic than demand, the burden falls more on the sellers.

For example, if the demand for a product is very responsive to price changes, meaning it is elastic, consumers can easily reduce their quantity demanded instead of paying higher prices due to the tax. In this case, the burden of the tax will fall more on the sellers as they will have to lower their prices to sell their products. Conversely, if the supply is very responsive to price changes, sellers can reduce the quantity supplied instead of accepting lower prices. In this case, the burden of the tax will fall more on the buyers as they will have to pay higher prices.