When a tax is levied on a good or service,

Question

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When a tax is levied on a good or service, the price of the product increases, which leads to a decrease in demand from the buyers. This means buyers are worse off since they have to pay higher prices for the same good or service. On the other hand, sellers may have to reduce the quantity they are willing to sell because of the tax, which means they are also worse off. Hence, both buyers and sellers end up worse off.

When a Tax Is Levied on a Good or Service