Which of the following statements is correct?
A) Whenever a per-unit tax is imposed, sellers always pass on the full amount of the tax to consumers in the form of higher prices.
B) The burden of a per-unit tax on cigarettes would likely fall more on consumers than would the burden of a tax on imported bottled water.
C) The burden of a per-unit tax is always equally shared between producers and consumers.
D) When a per-unit tax is imposed, the total losses to producers and consumers exactly equal the amount of revenue collected by the government.

Question

Quizplus · Accepted Answer

The burden of a per-unit tax is determined by the price elasticity of demand and supply. Products with more inelastic demand and supply will have a greater burden on consumers, while products with more elastic demand and supply will have a greater burden on producers. Cigarettes have relatively inelastic demand, so the burden of a per-unit tax on cigarettes would likely fall more on consumers. In contrast, bottled water has more elastic demand, so the burden of a tax on imported bottled water would likely fall more on producers. Therefore, statement B is correct. Statements A, C, and D are incorrect.

Which of the Following Statements Is Correct