Question

Even though firms collect the sales tax, the buyer pays the full amount of the tax.

A) True, the sales tax burden falls completely on the consumer.

B) False, the seller will pay the full amount of the tax because the equilibrium price decreases.

C) False, the tax burden is usually shared by both buyer and seller and rarely falls completely on one or the other.

D) True, consumers pay for taxes because firms raise the price.

Answer 1

Answer

Option A) is correct. True, the sales tax burden falls completely on the consumer.

Reason:

Sales tax is a consumption tax levied on goods and services purchased at the retail level, paid by the consumer and submitted by the retailer to the governing tax authority.

Sales tax is an indirect tax which is collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer).

Other Options are incorrect because producers do not pay the sales tax and the mere reason for the payment being done by the consumers is becuase it is an indirect tax.