New RBI Grade B 2024 Batch 7 45+ 20 Days Study Plan; Download Now !!!
Register

Question

Which of the following best explains the cascading effect of taxation?

(1) When tax imposition leads to a disproportionate increase in prices by an extent more than the rise in the tax.

(2) When tax imposition leads to a disproportionate decrease in prices by an extent more than the rise in the tax.

(3) When tax imposition leads to a disproportionate decrease in imports.

(4) When tax imposition leads to a disproportionate decrease in exports.

A 1 only Correct Answer Incorrect Answer
B 2 and 3 only Correct Answer Incorrect Answer
C 4 only Correct Answer Incorrect Answer
D 3 and 1 only Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

“Taxation over taxes” or “cascading-effect” of the taxes adds to the deadweight loss i.e. slump in total surplus of supply chain consisting of supplier, manufacturer, retailer and consumer. Due to cascading tax imposition leads to a disproportionate increase in prices by an extent more than the rise in the tax.

Practice Next
×
×