Final answer:
If the government increases indirect taxes such as excise duties and sales tax, it may impact tax revenue and the burden placed on consumers and sellers depending on the elasticity of demand and supply. Sellers have to carefully consider their response to these increases, which can range from adjusting prices, absorbing the costs, to lobbying for tax reductions. Hence the correct answer is all the options.
Step-by-step explanation:
When the government increases indirect taxes like excise duties and sales tax, the primary effect is reflected in the tax revenue and the tax incidence on both consumers and sellers. The tax revenue is indicated by the shaded area in economic models, calculated by multiplying the tax per unit by the total quantity sold (Qt). The tax incidence on consumers is the difference between the price paid (Pc) and the initial equilibrium price (Pe), and on sellers, it's the difference between the initial equilibrium price (Pe) and the price after tax is introduced (Pp).
If the market has very elastic demand and supply, an increase in taxes can lead to a change in quantities rather than prices, resulting in a lower tax revenue. In the case of products like tobacco, where demand is inelastic, the tax burden disproportionately affects consumers. For sellers, there are various responses to increased indirect taxes: A) increasing prices to maintain profit margins, B) reducing prices to attract more customers, C) keeping prices unchanged and absorbing the tax increase, or D) lobbying for a reduction in taxes and regulations.
As a seller, the sole responsibility in managing the impact of increased taxes depends on multiple factors including demand elasticity, market conditions, and overall business strategy. Each of the options (A-D) has implications: increasing prices could reduce demand, reducing prices might shrink profit margins, absorbing the cost could affect business sustainability, and lobbying is uncertain in outcome and could involve significant time and resources.