Question

A government can apply a tax to producers or a tax to consumers. Assuming those taxes...

A government can apply a tax to producers or a tax to consumers. Assuming those taxes are the same size, consumers ______.

A

are better off if the tax is applied to consumers

B

are better off if the tax is applied to producers

C

have the same outcome in both scenarios

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Answer #1

The correct answer is (C) have the same outcome in both scenarios

Who will bear more burden of tax depends on elasticity of demand and supply and It does not matter on whom tax is imposed.

If Demand is more elastic than supply then consumer will shift more burden on producers and thus producer will bear marger burden of tax and If Supply is more elastic than demand then producer will shift more burden on consumers and thus consumers will bear marger burden of tax.

Hence, the correct answer is (C) have the same outcome in both scenarios.

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