tax levied
money, euro, finance @ Pixabay

The $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve, but not in a predictable way. We can assume that some people will be willing to pay more for the product in order to avoid paying the taxes and others who would buy it regardless of cost may change their mind when faced with higher prices. But since we cannot predict what consumers do, let’s look at how this affects producers and sellers. The tax will be paid by the sellers of pomegranate juice, so they have an incentive to raise prices in order to keep their profits–which means that demand will decrease. But this is a tricky game; if they increase price too much then buyers may turn away from it and switch brands or products. This tradeoff between raising price but losing customers and lowering prices while maintaining current customer base illustrates why economists say taxes distort markets: because we can’t predict what people do in response to higher costs, one strategy for keeping prices stable would entail reducing production quantities which might mean not hiring new employees or cutting back on other spending such as advertising budgets. But let’s look at how the $200 million raised each year through this


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