Chapter 5.A, Problem 2AQ

If the government places a tax of $500 on luxury cars, what happens in the market? Please assume demand and supply that are "normal" i.e. not completely elastic and not completely inelastic. Demand is downward sloping and supply upward sloping :)    Question 7 options:   The price goes up by less than $500, and quantity sold goes up   The price goes up by less than $500, and quantity sold goes down   The price goes up by more than $500, and quantity sold goes down   The price goes up by more than $500, and quantity sold goes up

a)Show in four diagrams the incidence of an indirect (specific) tax in the case of elastic and inelastic demand and elastic and inelastic supply. b)Consider supply in the long run. Assume that a specific tax is imposed on a good that was    previously untaxed. How will the incidence of this tax change as time passes?

As price elasticity of demand increases, the burden of a tax gets _______; as price elasticity of supply increases, the burden of a tax gets _________. (Here, you can read "bigger" as "heavier" and "smaller" as "lighter" if that helps.)   bigger; bigger smaller; smaller bigger; smaller smaller; bigger