Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers are out of pocket including the tax, the amount sellers receive net of the tax, and the quantity of the good sold?

Question

Sharon Avery

Social Studies

3 March, 12:24

Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers are out of pocket including the tax, the amount sellers receive net of the tax, and the quantity of the good sold?

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Answers (1)

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Dominique Armstrong · Answer 1

It does not affect the buyers, the sellers, or the quantity of goods sold

Explanation:

Let us explain the above answer in stages:

Stage 1: The buyers were initially charged tax for buying the goods and the sellers were free from the same tax, supplying goods as normal.

Stage 2: The buyers are freed of tax for purchasing the goods and instead, the suppliers/sellers are taxed for supplying the goods.

Stage 3: Buyers won't feel a change in the price of goods since suppliers/sellers will add the tax charge of these goods to the price of the goods, and therefore demand won't change for buyers. Supply remains unchanged too since price net of taxes remains the same.