When the government imposes a tax on a firm that generates external costs, the tax is
A) always borne entirely by the firm.
B) always borne entirely by the consumer.
C) usually borne by both the firm and the consumer.
D) borne only by the government.

Question

Quizplus · Accepted Answer

When the government imposes a tax on a firm that generates external costs, the tax burden is typically shared between the firm and the consumer. The firm may face higher production costs, leading to higher prices for consumers, thus both parties bear some of the tax burden.

When the Government Imposes a Tax on a Firm That