When a tax is levied on buyers of a good,
A)government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax.
B)there is an increase in the quantity of the good supplied.
C)a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)the effective price to buyers decreases because the demand curve shifts leftward.

Question

Quizplus · Accepted Answer

When a tax is levied on buyers of a good, a wedge is placed between the price buyers pay and the price sellers effectively receive. This is because buyers will have to pay the tax on top of the original price, which will increase the overall price they pay. However, sellers will receive less than the original price because they will have to pay the tax out of their revenue. This difference between the price buyers pay and the price sellers receive is called the tax wedge.

When a Tax Is Levied on Buyers of a Good