Question

Do you believe that consumers gain less satisfaction as they consume more of a product in a given period? How do you think tax increases on products affect prices when the products are elastic/inelastic? Do sales or luxury taxes hurt some industries and not others?

Answer 1

A.Consumers gain more satisfaction by consuming more of a commodity but up to a particular point.We know that too much of anything is bad.So, if a consumer continues to consume after reaching the satiation point, the gains disutility.Now, he'll gain more by consuming less.

B.When demand is elastic then the price does not rise much because the producer bears greater burden of the tax. The higher the elasticity, the lesser the burden of the tax.

However,when demand is inelastic, the consumers bear greater burden to the tax. Price rises more in comparison to elastic demand.

C.Yes, the demand for luxury goods are elastic in nature.If a tax is imposed on a luxury good the producer bears most of the burden of the tax.So, the producers are hurt.