Principles of Economics- Mankiw (5th) 131

Principles of Economics- Mankiw (5th) 131 - CHAPTER 6 S U P...

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CHAPTER 6 SUPPLY, DEMAND, AND GOVERNMENT POLICIES 135 The mistaken assumptions about the incidence of the luxury tax quickly be- came apparent after the tax went into effect. Suppliers of luxuries made their congressional representatives well aware of the economic hardship they experi- enced, and Congress repealed most of the luxury tax in 1993. QUICK QUIZ: In a supply-and-demand diagram, show how a tax on car buyers of $1,000 per car affects the quantity of cars sold and the price of cars. In another diagram, show how a tax on car sellers of $1,000 per car affects the quantity of cars sold and the price of cars. In both of your diagrams, show the change in the price paid by car buyers and the change in price received by car sellers. CONCLUSION The economy is governed by two kinds of laws: the laws of supply and demand and the laws enacted by governments. In this chapter we have begun to see how these laws interact. Price controls and taxes are common in various markets in the economy, and their effects are frequently debated in the press and among policy-
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