When a tax is levied on a good, the buyers and sellers of the good share the bur

Question

When a tax is levied on a good, the buyers and sellers of the good share the burden, provided the tax is levied on the sellers. provided the tax is levied on the buyers. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. regardless of how the tax is levied. When a tax is imposed on a good, the supply curve for the good always shifts. the demand curve for the good always shifts. the amount of the good that buyers are willing to buy at each price always remains unchanged. the equilibrium quantity of the good always decreases. When a tax is imposed on the buyers of a good, the demand curve shifts downward by the amount of the tax upward by the amount of the tax. downward by less than the amount of the tax. upward by more than the amount of the tax. A tax placed on buyers of tires shifts the demand curve for tires downward, decreasing the price received by sellers of tires and causing the market for tires to expand. the demand curve for tires downward, decreasing the price received by sellers of tires and causing the market for tires to shrink the supply curve for tires upward, decreasing the effective price paid by buyers of tires and causing the market for tires to expand. the supply curve for tires upward, increasing the effective price paid by buyers of tires and causing the market for tires to shrink. When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic, buyers of the good will bear most of the burden of the tax. sellers of the good will bear most of the burden of the tax. the effective price paid by buyers of the good will decrease. the size of the market for the good will expand It does not matter whether a tax is levied on the buyers or the sellers of a good because sellers always bear the full burden of the tax. buyers always bear the full burden of the tax buyers and sellers w ill share the burden of the tax None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.

Explanation / Answer

14. When the tax is levied on the buyers, like the tax levied on the consumption of goods and services or VAT, then the buyers need to pay higher price for each of the items consumed. In that case, the buyers are the only ones who borne the tax levied on the goods and services, the sellers do not share the taxes, though because of these taxes, the demand for the goods falls, which is harmful for the sellers.

In these kinds of situations, the sellers could voluntarily forego some part of their profit to increase the sale of their products, but then again it’s a choice for the sellers.

But when the taxes are levied on the sellers, like the sales tax, etc, the sellers do not want to forego their profit margin and so the sellers pass on some burden of the taxes to the buyers by increasing the prices of the products. So, in this case, both sellers and buyers have borne the burden of taxes. In this kind of case the buyers have no choice but to pay the higher prices.

Again when government imposes portion of tax on both buyers and the sellers, then both of them have no choice but to pay the taxes, where the buyers pay higher price that includes the tax portion levied on them and the seller receives the price lower than the equilibrium one which excludes the portion of tax levied on them and the difference in prices is the total tax levied.

Therefore, if we assume that the sellers borne some part of the taxes when it is levied on the buyers to save the demand for their products from falling (as it might be increasing over time) to retain the market share, then we could say that both the parties share the burden of tax levied on the goods and services irrespective of how and on whom the tax is levied.

So, option (d) is the correct answer.

15. When a tax is imposed on goods, then we certainly the equilibrium price gets changed as both the buyers and the sellers borne the burden of taxes. As explained earlier, because of the levying of taxes, the buyers pay higher price than the equilibrium one and the sellers receive lower price than the equilibrium price.

So, the price paid by the buyers could be obtained by shifting the supply curve towards left or we could compute the price received by the seller by shifting the demand curve downward. Nevertheless, in both the cases, the equilibrium output falls, as the higher price for buyers reduce the demand and the lower price for the sellers reduce the supply.

So, option (d) is the correct answer.

16. When a tax is imposed on the buyers, some part of the tax is borne by the sellers, which results in lowering of price they received. So, in order to find out the level of price what the sellers receive, we could just shift the demand curve downward.

Therefore, as a result of tax imposition on buyers, the demand curve falls downward by less than the amount of tax imposed on them. Option (c) is the answer.

17. As explained in the earlier answer, an imposition of tax on the buyers, would lead the demand curve to fall downward, which will determine the price received by the seller. The price that the seller would receive would be less than the equilibrium price in the market and along with that the supply of goods will fall.

Therefore, as a result of tax placed on the buyers, the demand curve will fall, the seller will receive less than the equilibrium price and so the market for tires will shrink.

So, option (b) will be the correct answer.

18. The tax burden borne by the seller and buyer depends upon the elasticity of supply and demand respectively.

When the supply is relatively elastic, then a slight change in the price will change the supply to great extend; but the demand curve being inelastic, a change in price will not change the demand that much.

Therefore, we could say that due to the imposition of tax, since the supply curve is elastic, the sellers will borne a very small portion of tax, while the demand curve being inelastic, the buyers will borne the larger share of tax.

So, option (a) will be the correct option.

19. Actually the incident of tax depends on the elasticity of demand and supply as it determines the effect that the change in price could have on the buyers and sellers respectively. So, whether the buyers or the sellers will bear the entire amount of tax will depend on whether the demand curve is perfectly elastic or the supply curve.

But, for normal demand and supply curves, as we have explained earlier that both the buyers and sellers will share some portion of the tax in order to dodge any foreseeable loss.

Therefore, option (c) will be the correct answer.

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