Suppose there is currently a tax of $50 per ticket on airline tickets.Buyers of airline tickets are required to pay the tax to the government.If the tax is reduced from $50 per ticket to $30 per ticket,then the

Question

Quizplus · Accepted Answer

A reduction in tax lowers the overall cost of the product for consumers, which increases the quantity demanded at each price level. Therefore, the demand curve will shift upward. However, the effective price received by sellers will not increase by the full amount of the tax reduction ($20) because they will have to lower their prices somewhat to attract more buyers. As a result, the effective price increase for sellers will be less than $20. The supply curve, on the other hand, is unaffected by the tax change, so option C and D are incorrect.

Suppose There Is Currently a Tax of $50 Per Ticket