A tax placed on a good that is a necessity for consumers will likely generate a tax burden that ?
Correct answer: C. falls more heavily on buyers.
- A. falls more heavily on sellers
- B. falls entirely on sellers
- C. falls more heavily on buyers.
- D. is evenly distributed between buyers and sellers.
Explanation
A necessity usually has relatively inelastic demand, so buyers reduce their purchases only slightly when its price rises. Buyers therefore bear more of the tax burden, although sellers may bear part of it as well.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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