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Which of the following is not true in case of incidence of tax:

According to the microeconomic principle of tax incidence, the burden of a tax falls more heavily on the side of the market that is relatively more inelastic (less…

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Which of the following is not true in case of incidence of tax:

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Answer and explanation

Correct answer C

According to the microeconomic principle of tax incidence, the burden of a tax falls more heavily on the side of the market that is relatively more inelastic (less price-sensitive). When demand is inelastic and supply is elastic, buyers cannot easily reduce their consumption when the price rises, whereas sellers can easily adjust quantity supplied; consequently, buyers bear the majority of the tax burden rather than sellers. The statement that one can avoid the tax and leave the seller with a larger part when demand is inelastic and supply is elastic claims the exact opposite, so it is the one that is not true.

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