Which statement about taxes is accurate?

• A. 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.

Answer: (C)

Verified step by step guidance

1. Understand the concept of tax incidence, which refers to how the burden of a tax is divided between consumers and producers.
2. 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.
3. 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.
4. 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.
5. 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.