Question

Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1
Which of the following bears the total tax burden?
a) The consumers bear it
b) The producers bear it
c) The consumers and the producers each bear a part of it
d) The group that legally pays the tax bears it
e) The government bears it

Answer 1

The consumers and the producers each bear a part of  the total tax burden. Hence, option (C) will be regarded as the suitable option.

Give a brief account on tax burden.

The impact of a specific tax on the distribution of economic welfare is known in economics as tax incidence or tax burden. Economists distinguish between those who first pay taxes and those who eventually bear the burden. The difference between real earnings or utility costs before and after imposing the tax, accounting for how the tax affects prices, is used to calculate the tax burden, which reflects the genuine economic weight of the tax. The cost falls mostly on consumers rather than sellers if, for instance, a 10% tax is placed on butter sellers yet the market price increases by 8% as a result.

The French Physiocrats, in especially François Quesnay, are credited with popularizing the idea of tax incidence by arguing that all taxes ultimately affect landowners and reduce land rent. This idea was first brought to economists' attention by the French Physiocrats.

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