Question

What happens to the market price that buyers face as a result of taxation?

Multiple Choice select which one it is and ill give u 35 point ;D

1. It is greater than before the tax was imposed.


2. It is less than before the tax was imposed.


3. Taxation has no effect on price, only output.


4. Taxation affects average cost only.

Answer 1

2) It is less than before the tax was imposed.

A portion of the tax that is levied on a commodity must be paid by the seller, which lowers their profit margin. Sellers will raise the cost of the good and pass this cost onto purchasers in order to preserve their profit. This causes the market price that buyers must pay to rise as a result of taxation.