Question

Sunsa rt oid to ED rnab or 10 older od moil 9hg r bniH 8. Explain briefly why the government should avoid imposing tax increase on luxury goods if the govt likes to raise the tax revenue while with a social and economic justification of tax increase on luxury items, usually purchased by high income households. eniad

Answer 1

Demand of elasticity of luxury as goods is very high.

The impact of taxation depends on the relative price elasticity of demand and supply. If supply is more elastic than demand, purchasers bear most of the burden of taxation. If supply is more elastic than demand, producers arear the majority of tax expenditure.

For luxury products, if the prices are too high, a consumer can postpone a decision to buy a product and therefore, compared to the goods required, make luxury demands more elastic.

As a result the consumer will be in dilemma whether to buy or not to buy. Surely it will affect the economy. That’s why it is not advisable.