Author Question: Suppose automobile salesmen are required to pay a 1000 tax per car sold. Is it likely that the ... (Read 42 times)

Bernana · **on:** Jul 1, 2018

Suppose automobile salesmen are required to pay a 1000 tax per car sold.

Is it likely that the auto salesmen will bear the entire burden of this tax? Why or why not? Would it matter if the demanders were legally required to pay the tax? Explain in detail your answer.

Question 2

A leftward shift of the supply curve will lead to a(n)

A) increase in equilibrium price.
B) excess demand at the old equilibrium price.
C) decrease in quantity demanded.
D) All of the above.

ansleighelindsey · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

Assuming the supply curve is not perfectly inelastic; the auto salesmen will be able to shift some of the tax burden onto car buyers through higher prices as a result of the supply curve shifting upward by the amount of the tax. It would not matter if the demanders were legally required to pay the tax. If the demanders were legally required to pay the tax their demand curve would just shift downward by the amount of the tax, leading to lower prices and output. As long as the amount of the tax was the same, it would not matter who was statutorily required to pay the tax.

Answer to Question 2

D