Answer to Question #307821 in Microeconomics for Himanshu

Question

Can the government ensure that the effect of a food tax imposed on sellers is borne only by

the sellers? Why or why not?

Answer 1

There is no way the government can guarantee that food tax imposed on sellers is only borne by the sellers. It is impossible for such a situation to occur. This is because any food tax imposed on the sellers will be transferred by the sellers to the buyers of the products. It is a way of ensuring that the sellers are cushioned by raising the price of the food to cut off some to be paid as tax. The main aim of the sellers is to gain maximum profit, and taxes comes in the way of this. Therefore, the only way to ensure their target profit is not compromised is by raising the prices of their food to cater for the tax imposed by the government and argue that the cost of producing the food is high as the reason behind the rise in prices. Therefore, the government cannot ensure that the effects of food tax imposed are not transferred to the buyers.