Tax Incidence Defined

Steps:

• Recall that indirect taxes like sales tax shift costs between buyers and sellers based on elasticities.
• Define incidence as how the tax burden divides between consumer and producer prices.
• Evaluate options: A matches burden sharing; B describes deadweight loss; C is tax revenue; D is evasion effects.
• Select A as it directly aligns with economic incidence theory.

Why A is correct:

• Tax incidence refers to the division of the tax burden, where the proportion paid by consumers versus producers depends on supply and demand elasticities, as per standard microeconomic theory.

Why the others are wrong:

• B: This describes the deadweight loss from reduced quantity, not burden sharing.
• C: This measures government revenue, unrelated to who bears the tax.
• D: This refers to behavioral responses like evasion, not the core incidence concept.

Final answer: A