Exhibit 7-9
-When the government imposes a tax that must be paid by producers, economic theory indicates that the government's tax revenue

Question

Exhibit 7-9 
-When the government imposes a tax that must be paid by producers, economic theory indicates that the government's tax revenue

Quizplus · Accepted Answer

When the government imposes a tax on producers, it increases the cost of production for the producers, which they can pass on to the consumers by increasing the price of the product. Therefore, both producers and consumers share the burden of the tax, but not in equal parts. The extent to which each party bears the burden of the tax depends on the price elasticity of demand and supply. As a result, the government's tax revenue comes from both producers and consumers, but the share of each may vary.

Exhibit 7-9 -When the Government Imposes a Tax That Must Be Paid