A sales or excise tax

Question

Quizplus · Accepted Answer

A sales or excise tax is a tax on consumption, typically levied on specific goods or services. When a sales or excise tax is imposed, the cost of producing the taxed goods or services increases for producers, causing a shift in the supply curve upward by the amount of the tax. As a result, the equilibrium price of the goods or services increases, and the quantity sold in the market decreases, since consumers typically demand less as prices increase.

Answer: B
 If demand for a good or service is insensitive to price (i.e., relatively inelastic), producers may be able to pass on the entire burden of a sales or excise tax to consumers in the form of higher prices. In this case, the tax is rarely paid by the consumer since the demand doesn't change despite the price increase.

Answer: E
 Sales or excise taxes can come with high collection costs for governments. Since these taxes are levied at different points in the supply chain or distribution network, it is necessary to establish procedures for tracking and collecting the tax revenue. These procedures can be complex and can add to the overall cost of administering the tax, making it less efficient to collect.

A Sales or Excise Tax