When a Tax Is Levied on the Sellers of a Good

question 116

Multiple Choice

When a tax is levied on the sellers of a good:

• A)both buyers and sellers are economically worse off
• B)only sellers are worse off because they have to pay the tax
• C)only buyers are worse off because sellers pass the tax on to them
• D)there is no change because sellers will produce a different good for buyers to purchase

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Definitions:

Variable Costs

Expenses that vary in direct relation to the amount of output or sales.

Fixed Costs

Expenses that do not change with the level of output or sales, such as rent, salaries, and insurance, remaining constant regardless of business activity levels.

Margin of Safety

The difference between actual or anticipated sales and the sales level at the break-even point, measured to assess the risk of not covering fixed costs.

Contribution Format

A method of income statement presentation where costs are separated into variable and fixed categories, emphasizing the contribution margin.