Which of the following statements is correct?
A)The incidence of a tax is determined by the statutory burden of the tax.
B)Taxes lead to shortages.
C)Regardless of the statutory burden of a tax, the actual economic burden will depend on the relative elasticities of demand and supply.
D)The economic burden of a quota is always equivalent to the economic burden of a tax.

Question

Quizplus · Accepted Answer

The actual economic burden of a tax will depend on the relative elasticities of demand and supply. This means that even if the statutory burden of a tax is placed on producers, they may pass on some or all of the burden to consumers through higher prices, depending on the relative elasticities of demand and supply. Therefore, the economic incidence (burden) of a tax is not solely determined by the statutory burden, but also by how the burden is shifted between producers and consumers. Choices A and B are incorrect because the incidence of a tax is not solely determined by the statutory burden, and taxes do not always lead to shortages. Choice D is incorrect because the economic burden of a quota and a tax are different, as a quota restricts the quantity of a good that can be produced or imported, while a tax affects the price of a good.

Which of the Following Statements Is Correct