The Clinton administration has recommended an increase in the tax on yachts to help pay for government programs. Which of the following is true?
A) The burden of this tax will fall entirely on yacht consumers.
B) The burden of this tax will fall entirely on yacht manufacturers.
C) The sales of yachts will decrease.
D) The profit of yacht manufacturers will increase.
E) Employment of workers in the yacht industry will increase.

Question

Quizplus · Accepted Answer

When a tax on a specific good is increased, the demand for that good typically decreases because it is more expensive for consumers to purchase. Therefore, the sales of yachts will likely decrease if the tax is increased, as fewer people will be willing to pay the higher price.

The Clinton Administration Has Recommended an Increase in the Tax