fruit seller, fruit stand, vendor @ Pixabay

In this post, we’ll focus on the impact of a $2.00 birdhouse tax levied on the sellers of birdhouses and how it will shift the supply curve. The demand for new birdhouses won’t be affected by this because people who want to buy one are willing to pay up to $5.00 for it; however, those selling them will need to absorb half of that cost in order to stay competitive with other sellers – which is why they’ll reduce their supply from Q1 (10) units per day down to Q2 (4) units per day as shown below: – — Q0: 0 Units per day | Ql: (x) units per day, where x > 0. Let’s say that the impact of a $20 birdhouse tax would be to reduce supply from Ql down to just one unit per day as shown below which is equivalent to an elasticity of -100 percent for demand and 100% for cost. That means when cost goes up by 20%, demand will go down by 20%. So in this case it doesn’t matter how much you want to buy because there’s no way to get any! – —


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