Suppose you are chair person of a state tax commission
Hello,
write a discussion -by simple english vocabs- about this:
“Suppose you are chair person of a state tax commission that is responsible for establishing a program to raise new revenue through the use of excise taxes.
Would elasticity of demand be important to you in determining those products upon which excise taxes should be levied? Explain.”
and please reply to theses:
1-
“The elasticity of demand would be significant to me. The elasticity of demand moves the responsiveness of the quantity demanded of a commodity when its price changes. Therefore,When a tax is introduced in a market with an inelastic supply, For example, hotels located on the beach or the reality of luxury, sellers will accept the lowest prices for their work, where the tax is located on them, and will not affect the taxes significantly on the amount of balance significantly.
If the offer is flexible, the tax burden on the sellers will be relatively low, and the tax would result in a much smaller quantity sold instead of lower prices received (“Elasticity and tax revenue,” n.d.)
For me, When imposing indirect taxes I would prefer to choose the goods for which the demand is inelastic because if the demand for a product is inelastic, it means that a change in price, whether high or low, will result in a relatively minor change in the quantity required of that commodity.”
2-
“Studying the Elasticity of Demand to determine which products to levy a tax on is extremely important for excise tax. By studying the Elasticity of Demand, we can determine how the change in price of a product will affect the demand of that product by the quantity sold. By levying an excise tax on products, the price of that product will increase. This happens because businesses will pass the cost increase onto the customer so that they do not have to eat the cost of said tax. Likewise, if businesses can reduce costs of their products they will pass the cost savings onto the customer. Also, using Elasticity of Demand will help determine the optimal tax rate. If levying a tax on a product does not reduce quantity sold, then a higher tax rate may generate more tax receipts without lowering demand for said product. Products with low Elasticity will allow for an increase in price. Therefore, the local government should levy a tax on products with the lowest Demand Elasticity. The government can also determine the optimal tax rate to levy on those products to generate the most tax revenue. Subsequently, the government may lower tax rates currently levied on products with high Elasticity to generate more tax revenue because the marginal sales increase as demand increases.”
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Discussion
In this discussion, I have assumed the role of a chairperson of a state tax commission that is charged with the responsibility of establishing a program to raise revenue through the use of excise taxes. Excise taxes are taxes that are raised or paid when purchases are made for certain products and services. A major component of excise taxes is that they are levied on manufactured goods at the moment when they are manufactured instead of being levied during the sale of the product. On many occasions, they are levied on products that are superfluous such as alcohol and cigarettes.
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