Suppose that a policy maker knows there are currently 1,000 cars purchased each year in the city. In order to build a new park next year, which will cost $500,000, the policy maker decides to impose a tax of $500 on each car purchased. Which of the following scenarios is most likely to occur?

Question

Quizplus · Accepted Answer

The $500 tax will increase the cost of purchasing a car, which will likely disincentivize people from buying cars. As a result, the number of cars purchased will likely decrease, and the amount raised from the tax will likely be less than $500,000.

Suppose That a Policy Maker Knows There Are Currently 1,000