The statement which is TRUE based on the above information is: "Producers are bearing 10% of the tax burden." (Option A)
Tax burden simply refers to the amount of tax that a corporate or legal individual must as a result of their economic activities.
The seller's pricing level was $20 before tax. However, after tax, the seller's price is $18. So,
Producers get after tax = [(New selling price - Old selling price) / Old selling price] * 100
As a result, after taxation, producers get
= [(18 - 20) / 20] * 100
= - 10%.
This indicates that after taxation, manufacturers receive 10% less than before. This means that the producers shoulder 10% of the tax burden.
As a result, all alternatives except option A are incorrect. This makes Option A the right response.
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Full Question:
A government imposes a $10 per-unit tax in a competitive market. Afterward, the seller's after-tax price falls from the original equilibrium price of $20 to $18. Based on this, which of the following is true? Explain why you chose that option.
A) Producers are bearing 10% of the tax burden.
B) The next after-tax equilibrium price will be $30.
C) Consumers are bearing 80% of the tax burden.
D) The government will collect less than $10 per unit exchanged of the good.
E) The quantity demanded will decrease by 10%.
