Question

When a tax on a good is enacted,a. buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.b. buyers always bear the full burden of the tax.c. sellers always bear the full burden of the tax.d. sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them

Answer 1

A) buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.

Step-by-step explanation:

No matter who is responsible for paying the tax, the burden is always shared by both the suppliers and the consumers. Any tax levied on a product or service always decreases the amount of money received by the supplier and increases the amount of money paid by the consumers.

To make things worse, both consumers and suppliers will lose because the quantity demanded will decrease, decreasing consumer surplus, and the quantity supplied will also decrease, decreasing supplier surplus. Taxes always result in a deadweight loss since the total economic surplus decreases.

Answer 2

Answer: a. buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.

Explanation: When a tax such as Value Added Tax is levied on a good, the burden is shared by buyers and sellers. When it is a finished product, the seller bears the burden of the tax at the point of buying and then transfers some of this burden to the buyer when selling the product. This also applies to manufacturing, where tax is levied on all the products used in making a finished product.

When the tax is only levied on sellers, the buyers bear the burden in the form of increased prices.