Answer to Question #183768 in Macroeconomics for Wanga

Question

(a) Why are second hand motor cars are sold at a huge discount on Black Friday? (2)

(b) Why does the government usually increase taxes on cigarettes and alcohol in order to increase its revenue? (2)

Answer 1

a) The incentive to buy is usually higher on big discount dates such as Black Friday. A lot of buyers look forward this to complete their purchase on this exact day. This gives sellers a possibility to purge their shelves. Second hand motor cars sellers might be putting even fake discounts just to get rid of the cars.

b) cigarettes and alcohol usually have an inelastic demand which means that if the price increases after the tax does it won't affect the quantity purchased