A consumer values a car at $30,000 and a producer values the same car at $20,000.If a tax is levied on the seller,what level of tax will result in unconsummated transaction?

Question

​A consumer values a car at $30,000 and a producer values the same car at $20,000.If a tax is levied on the seller,what level of tax will result in unconsummated transaction?

Quizplus · Accepted Answer

If a tax of 60% is levied on the seller, the seller will receive only $20,000 * (1 - 0.6) = $8,000. Since this is less than the producer's valuation of $20,000, the producer will not be willing to sell the car, and the transaction will not take place.

​A Consumer Values a Car at $30,000 and a Producer

A Consumer Values a Car at $30,000 and a Producer