Question

three-fourths of the burden, and sellers bear one-fourth of the burden. b. one-half of the burden, and sellers bear one-half of the burden. c. two-thirds of the burden, and sellers bear one-third of the burden. d. one-fourth of the burden, and sellers bear three-fourths of the burden.

Answer 1

The correct option is: For each unit of the good that is sold, buyers bear one-half of the tax burden and sellers bear one-half of  the tax burden.

Explanation:

Incidence of tax is a term referred in economics which deals with division of taxes. Tax incidence refers to division of tax among the buyer and seller for a product. The tax incidence is related to the price elasticity of supply and demand.

When a product is sold, the buyer of the product is charged with one-half of the tax burden and the seller of the product bears the other-half of the tax burden.

The incidence of tax can be observed in two ways:

i) Formal incidence

ii) Effective incidence