– If the government imposes tax on good, price of goods also increases.
– Demand will decrease as price increase.
– Hence market equilibrium will disturb and new marketing equilibrium exists. Thus burden with the incidence of such taxes which is distributed between consumer and producer.
– Consumer pay to the extent the price rises due to tax, is known as consumer share of tax on good/consumer burden.
– Similarly, producer has to pay some portion of the price rise due to tax is known as producer share/producer burden.
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