Question

If a tax is placed on buyers, they will end up paying an _______ percentage of the tax compared to the situation when the same tax is instead place on sellers.

I want to say it is an increased percentage, but I'm not sure. Textbook and professors lecture notes don't say anything about it.

Answer 1

Here is the rule of thumb to determine who will pay the increase percentage of a tax– sellers or buyers.

Irrespective of on whom the tax is placed, whether it's placed on buyers or on sellers, if the elasticity of demand is less than the elasticity of supply, the buyers will end up paying an increase percentage of the tax. And if elasticity of demand is more than the elasticity of supply, then sellers will end up paying can increased percentage of the same tax whether it is placed upon buyers or on themselves.

When the tax is placed on sellers or buyers, who pays more percentage of tax is not determined by on whom the tax is placed. Who pays more percentage of tax is determined by the elasticity of the supply and demand curve. An increased percentage of tax is paid by sellers if the elasticity of supply is less than the elasticity of demand and an Increased percentage of tax is paid by buyers if the elasticity of demand is less than the elasticity of supply.

In the above question it cannot be determined just by the given information as to who pays an increased percentage of the tax. The details regarding the elasticity of demand and supply are needed to determine that. If we have the required information on elasticities of demand and supply, then applying the above given rule, it can be found who will pay an Increased percentage of the tax.