The actual incidence of a tax
A) depends on the statutory incidence.
B) is entirely random.
C) depends on the elasticities of supply and demand.
D) falls entirely on buyers or entirely on sellers.

Question

Quizplus · Accepted Answer

The actual incidence of a tax depends on the elasticities of supply and demand. When demand is more elastic than supply, the burden of the tax falls more heavily on the producer, and when supply is more elastic than demand, the burden of the tax falls more heavily on the consumer. In rare cases, the burden can be split equally between buyers and sellers if the supply and demand are perfectly elastic. The statutory incidence refers to who is legally responsible for paying the tax, but the actual incidence can be different depending on market forces. The incidence is not entirely random as it is determined by the forces of supply and demand.

The Actual Incidence of a Tax