Price Tag (Included or Excluded)

Price Tag (Included or Excluded)

A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state. The calculation of tax has two main way is by price such as VAT and quantity normally imposed on custom tax.

In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that, at the end of the day, bears the burden of the tax. The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. For example, a tax on apple farmers might actually be paid by owners of agricultural land or consumers of apples.

Imagine a $1 tax on every barrel of apples an apple farmer produces. If the apple farmer is able to pass the tax along to consumers of apples by raising the price $1, then consumers are bearing the entire burden of the tax. The tax incidence is falling on consumers. On the other hand, if the apple farmer can't raise prices, then the farmer is bearing the burden of the tax. The tax incidence is falling on the farmer. If the apple farmer can raise prices only $0.50, then they are sharing the tax burden. When the tax incidence falls on the farmer, this burden will flow back to owners of the relevant factors of production, including agricultural land and employee wages.

In the case of the government policy, it is depend on the type tax. If government want to reduce the consumption such as sin tax or excise tax that was usually imposed on tobacco, gasoline and alcohol. Even though in Economic sense might not has a different between included or exclude-tax price tag. However, it will matter in the psychological aspect. That is consumer can easily recognized how much they had to pay for the tax. Then, Government should impose exclude tax price tag on sin tax. In the other hand, for the company, they should include tax price tag strategy, because consumer normally thinks that the tax was burdened by producer. From this point, it is easier to sell their product.






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