What does the tax incidence depend on

Question

Quizplus · Accepted Answer

Tax incidence, or who ultimately pays for the tax, depends on the forces of supply and demand. If the demand for the good is relatively inelastic, then the buyers will end up bearing most of the burden of the tax. If the supply for the good is relatively inelastic, then the sellers will end up bearing most of the burden of the tax. Therefore, the tax incidence is ultimately determined by the elasticity of the relevant market. So, C is the correct answer.

A, B, and D are not correct because tax incidence depends on the specific market conditions and elasticity of demand and supply, not just on whether the tax is levied on buyers or sellers, government regulations, or size of the market.

What Does the Tax Incidence Depend on