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The tax incidence is thus said to fall on the employee. [3] However, it could equally well be argued that in some cases the incidence of the tax falls on the employer. This is because both the price elasticity of demand and price elasticity of supply affect upon whom the incidence of the tax falls.
The economic incidence of a tax falls on the party that bears the actual cost of the tax. Put another way, economic incidence reflects the actual change in an individual's or firm's resources due to the tax. [2] The statutory incidence of the tax is irrelevant to the economic incidence of the tax. [2] In fact, the economic incidence is ...
In the pre-tax equilibrium the distance equals $5.00 x 0.20 = $1.00. This burden of the tax is again shared by the buyer and seller. If the new equilibrium quantity decreases to 85 and the buyer bears a higher proportion of the tax burden (e.g. $0.75), the total amount of tax collected equals $1.00 x 85 = $85.00.
The cost of a distortion is usually measured as the amount that would have to be paid to the people affected by its supply, the greater the excess burden. The second is the tax rate: as a general rule, the excess burden of a tax increases with the square of the tax rate. [citation needed]
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Revenue is maximized when price is set so that the elasticity is exactly one. The good's elasticity can be used to predict the incidence (or "burden") of a tax on that good. Various research methods are used to determine price elasticity, including test markets, analysis of historical sales data and conjoint analysis.
To calculate sales tax, multiply the total cost of the product by the sales tax rate levied in your area. Find out how much your area charges. How To Calculate Sales Tax: A Step-by-Step Guide