Answer to Question #280812 in Accounting for Mudasir

Question

If the government levies an additional tax on lucury items the price of these items will rise how ever this will cause demand to decrease and as aresult the price will fall back down perhaps even to their original levels. Do you agree with this statement ? Explain

Answer 1

I totally agree with this statement because not all consumers will afford luxury items if their prices increases due to additional tax. Therefore, demand will decrease and this will force producers to lower the prices.