Suppose the government levies a $1 per unit tax on a product. Which of the follo

Question

Suppose the government levies a $1 per unit tax on a product. Which of the following statements is correct?

I.      If the tax is imposed on the buyers of the product, the price that buyers pay will rise by $1.
II.      If the tax is imposed on the sellers of the product, the price that sellers receive will fall by $1.
III.      Regardless of whether the tax is imposed on the buyers of the product or on the sellers of the product, the price that buyers pay will rise by less than $1 and the price that sellers receive will fall by less than $1.

I think that the answer is just III, but I'm not sure.

Explanation / Answer

Ans: Regardless of whether the tax is imposed on the buyers of the product or on the sellers of the product, the price that buyers pay will rise by less than $1 and the price that sellers receive will fall by less than $1.

Explanation: Because the tax burden will be shared by both buyer and seller.

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