A tax raises the cost of production for sellers, leading them to raise the price at which they offer their goods or services. This, in turn, raises the price buyers must pay. Thus, both option B (raises the price buyers pay and lowers the price sellers receive) and option C (places a wedge between the price buyers pay and the price sellers receive) are correct.

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A Tax

Question 191

Multiple Choice

A tax

A) lowers the price buyers pay and raises the price sellers receive.
B) raises the price buyers pay and lowers the price sellers receive.
C) places a wedge between the price buyers pay and the price sellers receive.
D) Both b) and c) are correct.

Correct Answer: