A tax on renting capital equipment will always decrease the quantity of capital supplied.

Question

Quizplus · Accepted Answer

A tax on renting capital equipment might not always decrease the quantity of capital supplied because the impact depends on the elasticity of supply and demand. If the supply is perfectly inelastic, or if the demand is perfectly elastic, the quantity supplied might not change. Additionally, suppliers might absorb the cost of the tax or find ways to pass it on to renters without reducing the quantity supplied.

A Tax on Renting Capital Equipment Will Always Decrease the Quantity