A tax imposed on the sellers of a good will A. raise the price buyers pay and lower the effective price sellers receive. B. lower both the price buyers pay and the effective price sellers receive. C. raise both the price buyers pay and the effective price sellers receive. D. lower the price buyers pay and raise the effective price sellers receive.

Question

Business

Hadley Mack

19 February, 08:00

A tax imposed on the sellers of a good will A. raise the price buyers pay and lower the effective price sellers receive. B. lower both the price buyers pay and the effective price sellers receive. C. raise both the price buyers pay and the effective price sellers receive. D. lower the price buyers pay and raise the effective price sellers receive.

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Answers (1)

Know the Answer?

Joaquin Heath · Answer 1

The correct answer is option A.

Explanation:

A tax imposed on a product is likely to affect both buyer and seller irrespective of whoever agent it is imposed on. The effect of tax depends on the relative elasticity of buyers and sellers.

A tax imposed on the seller causes the cost of production to increase. As a result, the supply of the commodity gets reduced. This further causes the supply curve to shift to the left. Consequently, the price that buyers pay for the commodity will increase. While the price that sellers receive for their good decreases.