Suppose the Government Imposes an 8 Percent Sales Tax on Clothing

Multiple Choice

Suppose the government imposes an 8 percent sales tax on clothing items and the tax is levied on sellers.Who pays for the tax in this situation? (Assume that the demand curve is downward sloping and that the supply curve is upward sloping.)

A) The tax is borne entirely by the sellers.
B) The sellers will pass on the entire sales tax to consumers and therefore the consumers bear the tax.
C) The tax will be borne partly by consumers and partly by sellers.
D) It is not possible to answer the question without information on price elasticities.