Question

When a tax is placed on the sellers of energy drinks, the a. burden of the tax will be always be equally divided between the buyers and the sellers. b. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal. c. buyers bear the entire burden of the tax. d. sellers bear the entire burden of the tax.

Answer 1

Answer:

The correct answer is b) burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

Explanation:

According to the market equilibrium model, a market reaches equilibrium in the point where demand and supply curves intersect. When a new tax is introduced on sellers, the price of the good increases, shifting not only the supply curve, but the demand curve as well, since consumers will buy less of the good. Only if either demand or supply curve was completely elastic or completely inelastic, would the tax have incidence on either buyer or seller alone.