Which of the following best explains the cascading effect

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Which of the following best explains the cascading effect pf 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 extant more than the decrease in imports.
3. When tax imposition leads to a disproportionate decrease in imports.
4. When tax imposition leads to a disproportionate decrease in exports.

Correct Option: A

Taxation over taxes'' taxes or ''cascading - effect" of the taxes adds to the dead-weight 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.