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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

When a good is taxed, the burden of the tax falls mainly on consumers if

a. the tax is levied on consumers.

b. the tax is levied on producers.

c. supply is inelastic, and demand is elastic.

d. supply is elastic, and demand is inelastic.

To determine
When the impact of tax is mainly on consumers.

Explanation

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government.

Option (d):

When the supply curve of the economy is elastic and the demand curve is inelastic, the imposition of tax in the economy will lead to shift in the supply curve to the upward and the interaction of the new supply curve on the inelastic demand curve will lead to a higher price level and the burden of the tax will fall mainly on the consumers. Thus, option 'd' is correct.

Option (d):

The impact of tax is basically equally distributed amongst the producers and the consumers. They equally distribute the impact which would lead to the equal impact for both producers and consumers when the imposition is on either party. Thus, option 'a' is incorrect...

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