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.
The correct answer and explanation is:
Answers:
- When a tax is levied on a good, the buyers and sellers of the good share the burden:
Correct answer: regardless of how the tax is levied. - When a tax is imposed on a good:
Correct answer: the equilibrium quantity of the good always decreases. - When a tax is imposed on the buyers of a good:
Correct answer: the demand curve shifts downward by the amount of the tax. - A tax placed on buyers of tires:
Correct answer: the demand curve for tires downward, decreasing the price received by sellers 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:
Correct answer: buyers of the good will bear most of the burden of the tax. - It does not matter whether a tax is levied on the buyers or the sellers of a good because:
Correct answer: buyers and sellers will share the burden of the tax.
Explanation:
- Tax Incidence and Burden Sharing
When a tax is levied, the economic burden (tax incidence) is shared between buyers and sellers regardless of whom the tax is legally imposed on. This division depends on the relative elasticities of demand and supply. If demand is less elastic than supply, buyers bear more of the tax burden because their quantity demanded is less sensitive to price changes. Conversely, if supply is less elastic, sellers bear more of the burden. - Impact of a Tax on Market Equilibrium
A tax creates a wedge between the price buyers pay and the price sellers receive, reducing the quantity traded in the market. This always leads to a decrease in the equilibrium quantity, as buyers face higher effective prices and sellers receive lower effective prices. - Effect of Tax on Buyers
When a tax is imposed on buyers, the demand curve shifts downward by the amount of the tax, reflecting that buyers are now willing to pay less for each unit of the good. This reduces the price sellers receive and the equilibrium quantity traded. - Tax on Buyers of Tires
A tax on buyers shifts the demand curve downward, lowering the price sellers receive. The market for tires shrinks because higher effective prices discourage buyers, and lower revenue discourages sellers. - Tax Burden with Elastic Supply and Inelastic Demand
When supply is elastic, sellers can easily adjust quantities supplied, avoiding much of the tax burden. However, inelastic demand means buyers cannot reduce consumption significantly, so they bear most of the burden. - Tax Incidence Does Not Depend on Legal Assignment
Whether a tax is levied on buyers or sellers does not affect the actual division of the tax burden. It is determined by the elasticities of supply and demand. Both parties share the tax burden in accordance with their relative elasticities.