Question

Which of the following is not correct? a. A tax places a wedge between the price that buyers pay and the price that sellers receive. b. In the new after-tax equilibrium, buyers and sellers share the burden of the tax. c. The wedge between the buyers’ price and the sellers’ price is the same, regardless of whether the tax is levied on buyers or sellers. d. Taxes levied on sellers and taxes levied on buyers are not equivalent.

Answer 1

Answer:

D) Taxes levied on sellers and taxes levied on buyers are not equivalent.

Explanation:

Whether a tax is levied on the buyer or the seller of the good doesn't matter because they both place a wedge between the price that buyers pay and the price that sellers receive. And that difference will be the same regardless of who is responsible for paying the taxes. E.g. a sales tax is paid by the buyer, but the difference between the money paid and the money received would be the same if the tax was paid by the seller instread.