A tax wedge is the difference between the amount a buyer pays and the amount a seller receives, due to the imposition of a tax. This concept captures the idea that taxes can drive a "wedge" between the buyer's price and the seller's price.

Solved

A Tax Wedge

Question 89

Multiple Choice

A tax wedge:

A) refers to the difference in the price the buyer pays and the price the seller keeps.
B) refers to the shift in supply or demand that results from a tax.
C) only occurs in markets when the tax is placed on buyers.
D) only occurs in markets when taxes are placed on large corporations.

Correct Answer: