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What happens in a market when taxes are imposed? How do buyers and sellers share the...

  1. What happens in a market when taxes are imposed? How do buyers and sellers share the burden of tax?
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Answer : When tax is imposed in market then the market supply decrease. Due to decreasing market supply the market supply curve shift to leftward. As a result, the market price level increase and market quantity level decrease.

The burden of tax share depends on elasticity of demand and supply. If demand is elastic in compared to supply then sellers bear more burden of tax than buyers. But if demand is inelastic in compared to supply then buyers bear more burden of tax than sellers. Thus the burden of tax is shared by buyers and sellers.

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