Map ntify whether the following statements about the economics of taxes are true
ID: 1188747 • Letter: M
Question
Map ntify whether the following statements about the economics of taxes are true or false by dragging and aropping the relevant word into the bins provided. Tax incidence is determined by which group (buyers or sellers) must write the check to the government. When the price elasticity of demand is low and the price elasticity of supply is high, the burden of a tax falls mainly on producers. The effect of a tax on the equilibrium price is the same regardless of who the tax is levied upon When the price elasticity of demand is high and the price elasticity of supply is low, the burden of a tax falls mainly on consumers. A tax can distort incentives and create missed opportunities for mutually beneficial transactions. True FalseExplanation / Answer
1. TRUE
Tax incidence is the burden (share) of tax to be borne by consumer and producer.
2. FALSE
When price elasticity of demand is low, tax incidence falls mainly on the buyers, since buyers will not be too sensititve to increase in price in form of tax burden passed on to them by sellers.
3. TRUE
Equilibrium price remains the same irrespective of who bears the tax, only the tax incidence changes.
4. FALSE
When elasticity of demand is high (and elasticity of supply is low), tax incidence is mostly shared by the seller, because if buyers face an increased price (in form of higher taxes), quantity demanded will fall.
5. TRUE
Tax distorts incentives by creating a wedge between buyer price and seller price.