Suppose a tax is imposed on a good. This will
A) increase the price paid by the buyer and decrease the price received by the seller.
B) decrease the price received by the seller but leave the price received by the buyer unchanged.
C) increase the price received by the seller and decrease the price paid by the buyer.
D) increase the price paid by the buyer but leave the price received by the seller unchanged.

Question

Quizplus · Accepted Answer

When a tax is imposed on a good, it generally increases the cost for the buyer because the seller will pass on some or all of the tax burden to the buyer in the form of higher prices. At the same time, the seller receives less for the product because the tax eats into the profit margin, effectively decreasing the price received by the seller.

Suppose a Tax Is Imposed on a Good