Who generally bears most of a sales tax when the demand for the good taxed is inelastic the producer the retailer the consumer the wholesaler?
The burden of a tax falls most heavily on someone who can't adjust to a price change. That means buyers bear a bigger burden when demand is more inelastic, and sellers bear a bigger burden when supply is more inelastic.
If demand is more inelastic than supply, consumers bear most of the tax burden. But, if supply is more inelastic than demand, sellers bear most of the tax burden.
When supply is more elastic than demand, the tax burden falls on the buyers. If demand is more elastic than supply, producers will bear the cost of the tax.
6. A tax on a good raises the price buyers pay, lowers the price sellers receive, and reduces the quantity sold. 7. The burden of a tax is divided between buyers and sellers depending on the elasticity of demand and supply.
Imposing a tax per unit increases the price that is paid by buyers and reduces the price that is received by producers, assuming that both demand and supply are elastic. In addition, it reduces the market equilibrium quantity. Thus, the consumer and producer's surplus decreases in response to taxes.
The burden of a tax falls most heavily on someone who can't adjust to a price change. That means buyers bear a bigger burden when demand is more inelastic, and sellers bear a bigger burden when supply is more inelastic.
The side of the market that bears more of the burden of a tax is the side that is less elastic.
Sales tax is usually imposed on the purchaser (consumer). However, some sales taxes are imposed on the seller, sometimes called a “transaction privilege tax”. However, in either case, the tax is typically collected by the seller from the purchaser and remitted to the state by the seller.
When the supply is more elastic than demand, buyers pay the greater share of the tax, that is the price to the buyer goes up more than the price to the sellers goes down. The buyers pay more of the tax when the supply curve is more elastic.
Answer and Explanation: The imposition of a tax leads to a decrease in the supply. That causes the equilibrium price for the buyers to increase while the suppliers receive an amount lower than what they received before the tax.
Does a tax on buyers decrease demand?
As the tax is imposed on the buyer then the demand curve shifts leftward or decreases with the same supply curve in such a manner that both price and output decreases. As the tax is imposed then the demand curve shifts leftward such that the equilibrium decreases that means both price and output decreases.
A tax increases the price a buyer pays by less than the tax. Similarly, the price the seller obtains falls, but by less than the tax. The relative effect on buyers and sellers is known as the incidence of the tax.
The supply curve will shift upward as the prices of goods and services are affected by the tax; a tax imposition increases the equilibrium prices of commodities and reduces the number of products.
While taxes create deadweight loss, varies based on several factors. Two of the most important factors are whether a consumer is willing to spend on a product and how much, as well as how well a supplier can get the desired product to the consumer. This is one example of the law of supply and demand in economics.
Incidence of Tax:
In economics, incidence of tax refers to the distribution of tax burdens between consumers and producers. The general economic theory argues that tax burden is shared by both producers and consumers, regardless of whether that tax is levied on producers or consumers.
Therefore the more sensitive (elastic) the demand is, the more the tax will effect the demand. So, if the good has a relatively inelastic demand then a tax would cause relatively less percentage change in demand compared to the percentage change in price.
Perfectly inelastic demand occurs rarely in the real world. Close examples might include rare medicines, or fresh water in a time of drought: regardless of any price changes, these products will remain in demand.
Since the buyers have inelastic demand, their demand will not show a large change due to a price increase because of a tax imposition. The supplier would adjust their supply accordingly (fall in the prices they receive due to taxes) as they have elastic supply. Thus, most of the burden of the tax would lie on buyers.
The 20% of California families with the lowest incomes pay 7.4% of their incomes in combined state and local sales and excise taxes, compared to 0.8% for the richest 1%.
The chart below, from the report, shows that the poorest Americans pay nearly 11 percent of their income in taxes. By comparison, the wealthiest only pay a 5.4-percent tax share. Of the three main forms of state taxes—sales, property, and income—the sales tax hurts the poor most, says Gardner.
Which side of the market bears most of the tax burden if it is less elastic?
In the tobacco example, the tax burden falls on the most inelastic side of the market. If demand is more inelastic than supply, consumers bear most of the tax burden, and if supply is more inelastic than demand, sellers bear most of the tax burden.
While payroll taxes are legally imposed partially or wholly on employers, employees effectively pay almost the entire tax, instead of splitting the burden with their employers. This is because tax incidence is not determined by law, but by markets.
Answer and Explanation: The statement, "Whether buyers or sellers bear the majority of the tax burden depends on who initially imposed the tax," is False. Rather than who imposed the tax, where the burden of a tax falls depends on the price elasticity of the good.
Your tax basis is generally your original cost for the asset, minus depreciation deductions claimed, minus any casualty losses claimed, and plus any additional paid-in capital and selling expenses.
Sales Tax Is Usually Based on Sales Price. The amount of tax that is owed on taxable sale is determined by applying the applicable tax rate to the total sales price.
