The Government places a luxury tax on cars that sell for over $50k. What would happen to the supply of Bentleys?
The impact of the tax on the demand-supply equilibrium level of output and price is to move the amount toward a point where the before-tax amount demanded short the before-tax supply is the measure of the tax. A tax builds the value a purchaser pays by not exactly the tax. Essentially, the value/price the merchant gets falls, however by not exactly the tax. According to the question, the government is placing the luxury tax on cars above the price of $50k so that will leads to decline the level of supply because of the less demand in the market because some now not able to purchase the Bentley's. Graph for the same is given below
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