Explain the Difference Between Forward and Backward Shifting of a Tax

question 64

Essay

Explain the difference between forward and backward shifting of a tax.

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Definitions:

Oligopolistic Firms

Companies that operate in an industry dominated by a small number of players, where each one has some degree of market power.

React to Each Other

The interaction or response of entities or variables when influenced by changes in each other's state or actions.

Collusion

Agreement among firms to avoid various competitive practices, particularly price reductions. It may involve either formal agreements or merely tacit recognition that competitive practices will be self-defeating in the long run. Tacit collusion is difficult to detect. In the United States, antitrust laws prohibit collusion and conspiracies to restrain trade.

Cooperative Actions

Efforts or operations undertaken cooperatively by two or more parties, often aimed at achieving a common goal.