on 29-Jul-2015 (Wed)

The incidence of a tax is allocation of this tax between buyers and sellers.

Statutory incidence refers to who is legally responsible for paying the tax.

The actual incidence of a tax refers to who actually bears the cost of the tax through an increase in the price paid (buyers) or decrease in the price received (sellers).

If demand is less elastic (i.e., the demand curve is steeper) than supply, consumers will bear a higher burden-that is, pay a greater portion of the tax revenue than suppliers.

The party (be it suppliers or consumers) with the more elastic curve will be able to react more to the changes imposed by the tax. Hence, they can avoid more of the burden.

Goods and services used in the production of final goods and services are referred to as intermediate goods.

The quantity supplied is greater at higher prices.

The quantity demanded is greater at lower prices.

Changes in demand (supply) refer to shifts in a demand (supply) curve.

The change in quantity demanded (supplied) in response to a change in price represents a movement along a demand (supply) curve, not a change in demand (supply).

Demand is affected by changes in consumer tastes and typically increases (shifts to the right) with increases in income, increases in the price of substitute goods, or decreases in the price of complementary goods.

Supply is increased (shifted to the right) by advances in production technology and by decreases in input prices (prices of factors of production).