When a good is taxed,
A)both buyers and sellers of the good are made worse off.
B)only buyers are made worse off, because they ultimately bear the burden of the tax.
C)only sellers are made worse off, because the government holds them responsible for sending in the tax payments.
D)neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.

Question

Quizplus · Accepted Answer

When a good is taxed, both buyers and sellers are affected. The price of the good increases, reducing the quantity demanded by buyers, and the quantity supplied by sellers. As a result, both buyer and seller surplus decrease, making both parties worse off. Additionally, the tax revenue collected may not necessarily be used to provide goods and services that benefit buyers and sellers in the market.

When a Good Is Taxed