Consider the following statements when answering this question: I. It is impossible to shift taxes from producers to consumers without hurting the latter.
II) Only polluters pay (through production taxes) for the environmental damage they cause.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.

Question

Quizplus · Accepted Answer

I is false because tax incidence depends on the relative elasticities of supply and demand; taxes can be shifted from producers to consumers without necessarily hurting consumers more than producers, depending on the situation. II is false because while production taxes on polluters aim to make them pay for environmental damage, the actual economic incidence of these taxes can fall on consumers, workers, or shareholders, not just the polluters.

Consider the Following Statements When Answering This Question: I