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A tax placed on a good that is a necessity for consumers will likely generate a tax burden that a. falls entirely on sellers b. falls more heavily on buyers c. is evenly distributed between buyers and sellers d. falls more heavily on sellers

Ask by Rojas Salazar. in the United States
Feb 03,2025

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Answer

The tax burden falls more heavily on buyers.

Solution

When a tax is imposed on a good, the distribution of the tax burden between buyers and sellers depends primarily on the **elasticity** of both demand and supply for that good. - **Elasticity of Demand**: A good is considered a necessity if its demand is **inelastic**, meaning that consumers will continue to buy roughly the same amount even if the price increases. - **Elasticity of Supply**: If the supply is relatively more elastic or inelastic, it affects how much of the tax burden sellers can bear. For a **necessary good**, the **demand is inelastic**. This means consumers are less sensitive to price changes and will continue purchasing the good even if its price rises due to the tax. As a result, **buyers will bear a larger portion of the tax burden** because they cannot easily reduce their quantity demanded in response to the tax-induced price increase. **Answer:** **b. falls more heavily on buyers**

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When a tax is imposed on a necessity, such as food or medicine, the demand for that good is generally inelastic, meaning consumers will continue to buy it despite price increases. As a result, the tax burden tends to fall more heavily on buyers, as they are less sensitive to price changes for essential goods. In addition, sellers may try to absorb some of the tax to keep customers, but given the necessity's inelastic nature, they often end up passing most of the tax cost onto consumers. This situation creates a classic example of how taxes impact market behavior, highlighting the balance between consumer necessity and economic policy.

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