Asked by Briana Quist on Jul 08, 2024
Verified
If the government imposes a $500 excise tax on SUVs and the demand curve for SUVs is downward-sloping,suppliers of SUVs will simply raise the price by $500 and consumers will bear the entire burden of the tax.
Excise Tax
A tax levied on specific goods, services, or transactions, such as alcohol, tobacco, and gasoline, often intended to discourage their use or generate revenue.
SUVs
Sport Utility Vehicles; a category of large vehicles that are designed for off-road use or have capabilities for off-road use but are often used as family cars.
Downward-Sloping
A characteristic of demand curves in economics, indicating that demand decreases as the price increases.
- Evaluate the determinants that impact how taxation is divided among consumers and merchants.
Verified Answer
PL
Philip LonginoJul 15, 2024
Final Answer :
False
Explanation :
The actual burden of an excise tax between consumers and producers depends on the relative elasticities of demand and supply. If demand is more elastic than supply, producers will bear a larger share of the tax burden. Conversely, if demand is less elastic, consumers will bear more of the tax burden. It's not automatic that consumers will bear the entire burden by a $500 price increase.
Learning Objectives
- Evaluate the determinants that impact how taxation is divided among consumers and merchants.