Question
For which of the following products would the burden of a tax likely fall more heavily on the sellers? a. Clothing b. Jewelry c. Food d. Housing
Ask by Davey Ford. in the United States
Feb 03,2025
Real Tutor Solution
Tutor-Verified Answer
Answer
Housing taxes fall more heavily on sellers.
Solution
To determine which product's tax burden falls more heavily on sellers, we need to examine the **elasticity of supply and demand** for each product.
**Tax Incidence Basics:**
- **Elasticity of Demand:** Measures how much the quantity demanded responds to a change in price.
- **Elasticity of Supply:** Measures how much the quantity supplied responds to a change in price.
**Tax Burden Distribution:**
- If **demand is inelastic** (consumers are less responsive to price changes), **consumers bear a larger share of the tax**.
- If **supply is inelastic** (producers are less responsive to price changes), **producers bear a larger share of the tax**.
**Analysis of Options:**
1. **Clothing:**
- Both supply and demand are relatively **elastic**. Producers and consumers can easily adjust to price changes.
2. **Jewelry:**
- Demand tends to be **inelastic** because jewelry is often a luxury good. However, supply can also be somewhat inelastic due to the nature of materials and craftsmanship involved.
3. **Food:**
- Demand for essential food items is typically **inelastic**, meaning consumers are less sensitive to price changes. However, this generally shifts more burden to consumers rather than producers.
4. **Housing:**
- **Supply is notably inelastic** in the short term due to factors like zoning laws, construction time, and availability of land. This makes it difficult for producers to adjust supply in response to taxes.
- **Demand has some elasticity**, but the inelasticity of supply means that **producers (sellers) are more likely to bear a larger share of the tax burden**.
**Conclusion:**
Among the options provided, **housing** has the most inelastic supply, meaning that sellers (producers) are less able to shift the tax burden to consumers. Thus, the burden of a tax on housing is likely to fall more heavily on the sellers.
**Answer:**
d. Housing
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When it comes to the tax burden, sellers of jewelry would likely feel the pinch more heavily than others. This is largely due to the inelastic demand for luxury goods like jewelry—consumers are often willing to pay more, thus sellers can't easily pass the tax on to buyers without risking a drop in sales. On the other hand, the food market, particularly staple foods, typically has more elastic demand. People still need to eat, so sellers might be able to pass on any tax burdens without drastically affecting their sales. This market dynamic often leads to less of a tax impact on the sellers.
