The paper "How the Producers and Consumers Carry the Tax Burden in an Inelastic Market" is an outstanding example of a macro & microeconomics assignment. The price that producers receive is the price at which the producers purchase the raw materials from the supplies before processing. Basing on our case study the price that the producers receive the raw materials is $1.25 per pack. The consumers pay per pack is the price that the consumers pay inclusive of tax and that price is $2.50 (Gregory). Tax burden Tax burden=consumer pay the price-producer price =2.50-1.25=1.25 Tax burden=$1.25 QUANTITY The tax burden is the amount of income that taxpayers pay to the government by purchasing a product or service at an inflated price to cater to the tax.
This tax burden in most cases is shared between the producers and the consumers through the criteria of the producers’ tax incidence and the consumers’ tax incidence (Axelrod). Producers’ tax incidence: This is the effect of the government tax burden on the economic welfare of the producers is borne by the producers at an increased producer price and cannot be shifted to the consumers.
According to the graph above it can be shown by po - pe. Consumers’ tax incidence: This is the effect of the tax burden on the economic welfare of the consumers that is fully shifted by the producers to the consumers in form of the price increase. According to the graph above the consumer tax incidence is shown by pe-p1 (Gregory). Question d) Factors that determine the overall tax burden 1.) Price: When the producers charge high prices on goods so as to cater to the government taxes, the end result is large tax burdens in the market due to the reduced demand for the goods levied the high taxes. 2.) Income levels: When the consumers earn huge amounts of income the government levies high taxes on the goods and services so as to raise a lot of revenue to funds its budget.
This will also help in regulating the money supply within an economy (Taylor). 3.) Tax avoidance: This is the illegal way of avoiding the paying of tax by engaging in frauds and errors. As a result, the government is not able to collect enough revenue thus it increases taxes on goods and services so as to raise funds (D).
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