The term 'tax incidence' refers to:

• A. the legal responsibility for paying a tax to the government
• B. the distribution of the economic burden of a tax between buyers and sellers
• C. the total amount of tax revenue collected by the government
• D. the process by which a government decides which goods to tax

Answer: (B)

Verified step by step guidance

1. Understand that 'tax incidence' is a concept in microeconomics that deals with who ultimately bears the economic burden of a tax, regardless of who is legally responsible for paying it to the government.
2. Recognize that the legal responsibility for paying a tax (statutory incidence) is different from the economic burden of the tax (economic incidence), which can be shared between buyers and sellers depending on market conditions.
3. Recall that tax incidence depends on the relative elasticities of supply and demand: the side of the market that is less elastic (less responsive to price changes) will bear a greater share of the tax burden.
4. Note that tax incidence is not about the total tax revenue collected or the government's decision process on which goods to tax, but specifically about how the tax burden is divided between consumers and producers.
5. Therefore, the correct understanding of tax incidence is that it refers to the distribution of the economic burden of a tax between buyers and sellers.