When the government imposes a tax, sellers raise their price by the full amount of the tax.

Question

When the government imposes a tax, sellers raise their price by the full amount of the tax.
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Quizplus · Accepted Answer

Sellers do not always raise their price by the full amount of the tax. The extent to which sellers pass on the tax burden to buyers depends on the elasticity of demand and supply in the market. If demand is highly elastic, sellers may bear most of the tax burden as buyers switch to substitute products. Similarly, if supply is highly elastic, sellers may have to absorb most of the tax burden as they compete with other producers.

When the Government Imposes a Tax, Sellers Raise Their Price