Assume that the demand and supply curves for electric cars are elastic.If the government imposes a $500 tax on the buyer of each electric car,what can we assume will happen to the price of an electric car

Question

Quizplus · Accepted Answer

When a tax is imposed on buyers of electric cars, the demand curve shifts downwards since the effective price of electric cars increases for the buyers. As a result, the equilibrium quantity decreases, and the equilibrium price decreases, but by less than the size of the tax since the demand and supply curves are elastic. Thus, choice A is the best answer.

Assume That the Demand and Supply Curves for Electric Cars