The economic burden of a tax is always borne entirely by consumers.
B
Producers can always pass the full amount of a tax onto consumers.
C
The incidence of a tax depends on the relative elasticities of supply and demand.
D
Taxes always increase the equilibrium quantity in a market.
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1
Understand the concept of tax incidence, which refers to how the burden of a tax is divided between consumers and producers.
Recall that the economic burden of a tax does not always fall entirely on consumers; it depends on how responsive (elastic) consumers and producers are to price changes.
Recognize that producers cannot always pass the full amount of a tax onto consumers because the ability to do so depends on the relative elasticities of supply and demand.
Know that taxes generally decrease the equilibrium quantity in a market because they increase the cost of buying or selling the good, leading to lower quantity demanded and supplied.
Conclude that the correct statement is that the incidence of a tax depends on the relative elasticities of supply and demand, as this determines how the tax burden is shared.