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Suppose sellers of pizzas are required to send Rs
Suppose sellers of pizzas are required to send Rs.10 to the government for every pizza they sell. Further, suppose this tax causes the price paid by buyers of pizza to rise by Rs. 8 per pizza. Which of the following statements is correct?
a. This tax causes the demand curve for pizza to shift downward by Rs. 8 at each quantity of pizza.
b. The incidence of the tax is summarized by the fact that sellers send the tax payments to the government.
c. Eighty percent of the burden of the tax falls on buyers.
d. All of the above are correct.
Expert Solution
The fact that due to tax of Rs. 10 the price paid by buyers increases by Rs. 8 per pizza. So the demand curve for pizza shifts downwards by Rs. 8 at each quantity of pizza.
So option a is correct.
And it also means out of Rs 10 tax the buyer us paying Rs.8 tax, which is equal to,
8/10 × 100
= 80%
So Option C is also correct.
And now finally as mentioned in the question itself the incidence of tax is summarized by the fact that sellers send the tax payment to the government.
So all of the options are correct.
The correct answer is option D, all of the above are correct.
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