Which of the following statements is correct regarding the imposition of a tax on gasoline?
A)The incidence of the tax always falls on the buyer.
B)The incidence of the tax depends upon the price elasticities of demand and supply.
C)The incidence of the tax always falls on the sellers.
D)The oil company will ultimately pay.

Question

Which of the following statements is correct regarding the imposition of a tax on gasoline?
A)​The incidence of the tax always falls on the buyer.
B)​The incidence of the tax depends upon the price elasticities of demand and supply.
C)​The incidence of the tax always falls on the sellers.
D)​The oil company will ultimately pay.

Quizplus · Accepted Answer

The incidence of the tax on gasoline depends on the price elasticities of demand and supply. If demand is relatively elastic and supply is relatively inelastic, the burden of the tax will fall more on the sellers. If demand is relatively inelastic and supply is relatively elastic, the burden of the tax will fall more on the buyers. In reality, the incidence of the tax may be shared between buyers and sellers depending on the specific market conditions. Option A, C, and D are incorrect as they make blanket statements that are not universally applicable.

Which of the Following Statements Is Correct Regarding the Imposition