Final answer:
The true statement regarding tax incidence is IV, which says that both buyers and sellers will bear some of the tax burden if neither demand nor supply are perfectly elastic. The distribution of the tax burden depends on the relative inelasticities of demand and supply.
Step-by-step explanation:
The question addresses the concept of tax incidence and how the burden of a tax is distributed between buyers and sellers in a market. When analyzing which statements are true, we use economic principles related to supply and demand elasticity:
- I. This is not necessarily true; whether buyers bear the majority of the tax burden does not solely depend on who the tax is imposed on, but rather on the relative elasticities of demand and supply.
- II. This is also not necessarily true; the tax burden for buyers when the tax is imposed on sellers depends on the elasticities of demand and supply. If demand is more inelastic than supply, the consumers (buyers) bear most of the tax burden, regardless of who the tax is officially imposed on.
- III. This is false; buyers and sellers do not always bear equal amounts of the tax burden. It varies based on the elasticities of supply and demand.
- IV. This is true; when neither demand nor supply are perfectly elastic, both buyers and sellers will bear some of the tax burden.
The analysis shows that tax incidence largely depends on the relative inelasticity of demand and supply. If demand is more inelastic than supply, consumers tend to bear a larger share of the tax burden, and vice versa. Furthermore, when neither demand nor supply is perfectly elastic, the tax is split between buyers and sellers, based on how responsive each is to price changes.