Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The tax creates a fixed price increase for consumers only.
B
The elasticity of demand and supply determines how the tax is distributed.
C
Producers always absorb the entire tax burden regardless of market conditions.
D
Consumers will always pay less than producers when a tax is applied.
Understanding the Answer
Let's break down why this is correct
Answer
When a tax is placed on a good, both consumers and producers share the burden because the tax affects the price and availability of that good. Producers may raise prices to cover the tax costs, leading consumers to pay more. However, if consumers stop buying as much at higher prices, producers might have to lower their prices to attract buyers, which means they also absorb some of the tax burden. For example, if a tax is added to a soda, the price may rise, but if people buy less soda, producers could lower the price again to keep sales up. This interaction shows that the tax impacts both sides, leading to a shared burden.
Detailed Explanation
The way consumers and producers react to price changes affects how the tax is shared. Other options are incorrect because This idea suggests only consumers feel the tax; This option assumes producers always take the full tax hit.
Key Concepts
Tax Burden
Deadweight Loss
Market Efficiency
Topic
Tax Burden and Deadweight Loss
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.