A tax on a good typically raises the price that buyers pay because the tax is often passed on to consumers in the form of higher prices. At the same time, it lowers the price that sellers effectively receive because part of the price paid by buyers is diverted to the government as tax, reducing the net amount sellers receive.

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A Tax on a Good

Question 119

Multiple Choice

A tax on a good

A) raises the price that buyers pay and raises the price that sellers receive.
B) raises the price that buyers pay and lowers the price that sellers receive.
C) lowers the price that buyers pay and raises the price that sellers receive.
D) lowers the price that buyers pay and lowers the price that sellers receive.

Correct Answer: