Question

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.

Answer 1

Answer:

The Price would increase.

Explanation:

The concept is, that indirect taxes are added to the price of goods and hence shifted to the consumers. so consumers pay those indirect taxes in the form of increased prices.

Answer 2

Answer:

For the luxury goods ( car) the demand is relatively elastic and the supply is inelastic, so the price will rise by 500 dollar for the producer . So the tax burden will fall on the producer .