The demand for a good and the supply of a good are each neither perfectly elastic nor perfectly inelastic.If a sales tax on sellers of the good is imposed,the tax is paid by
A)the buyers only.
B)both the buyers and the sellers.
C)the sellers only.
D)the buyers only if demand for the good increases.
E)the suppliers only if the supply of the good increases.

Question

Quizplus · Accepted Answer

When a sales tax is imposed on sellers of a good, the cost of producing the good increases, and as a result, the supply curve shifts upward. This causes the equilibrium price to increase and the equilibrium quantity to decrease. The tax burden is passed on both to the buyers in the form of a higher price and to the sellers in the form of reduced profits. Therefore, both the buyers and the sellers share the burden of the tax.

The Demand for a Good and the Supply of a Good