Can you please check my answer to the question below? It would be nice if I can
ID: 2506095 • Letter: C
Question
Can you please check my answer to the question below? It would be nice if I can get help with adding more to the answer. Thanks for your help :)
If the government places a $500 tax on luxury cars, will the
price paid by consumers rise by more than $500, less than
$500, or exactly $500 ? Explain.
If the government imposes a $500 tax on luxury cars, the price paid by consumers will rise less than $500, in general. The burden of any tax is shared by both producers and consumers according to their elasticities. The price paid by consumers rises and the price received by producers falls, with the difference between the two equal to the amount of the tax. The only exception would be if the supply curve were perfectly elastic, responsive to change, in which case consumers would bear the full burden of the tax and the price paid by consumers would rise by exactly $500. If the demand curve is perfectly elastic at equilibrium than the supply curve, the producers will pay most of the tax burden. The inverse is also true.
Explanation / Answer
If the government imposes a $500 tax on luxury cars, the price paid by consumers will rise less than $500, in general. The burden of any tax is shared by both producers and consumers