How is the burden of the tax shared between buyers and sellers? Buyers bear A. three-fourths of the burden, and sellers bear one-fourth of the burden. B. two-thirds of the burden, and sellers bear one-third of the burden. C. one-half of the burden, and sellers bear one-half of the burden. D. one-fourth of the burden, and sellers bear three-fourths of the burden.

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Business

Lexi Stein

11 November, 14:33

How is the burden of the tax shared between buyers and sellers? Buyers bear A. three-fourths of the burden, and sellers bear one-fourth of the burden. B. two-thirds of the burden, and sellers bear one-third of the burden. C. one-half of the burden, and sellers bear one-half of the burden. D. one-fourth of the burden, and sellers bear three-fourths of the burden.

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Answers (1)

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Bentley Huynh · Answer 1

A. three-fourths of the burden, and sellers bear one-fourth of the burden.

Explanation:

Tax incidence, also known as incidence of tax is an economic term that is used to describe the division of a tax burden between a producer and consumer, or buyer and seller or employer and employee.

An incidence of tax is a function of the price elasticity of demand and supply of goods and services.

For instance, when the demand for goods is more elastic than supply, the tax incidence or burden falls on the producer of such goods. Also, if the supply of goods is more elastic than its demand, the tax incidence or burden falls on the buyer (consumers) of such goods. This simply means that, an incidence of tax (burden) is much more likely to fall on the part of the market that is inelastic.

Hence, the burden of the tax is shared between buyers and sellers, such that buyers bear three-fourths (3/4) of the burden, and sellers bear one-fourth (1/4) of the burden.