The imposition of a sales tax on shoes causes a shift in the demand curve for shoes.?

Question

Ture or False?

Answer 1

I would guess false, but that's just a guess. I can't imagine the price elasticity for shoes is high enough to cause a noticeable change for the 4-8% price change that sales tax would typically make, since shoes are likely more often bought because someone needs shoes than bought as a luxury..

Answer 2

Depends on how high a tax. Many sales taxes on clothing only apply to "luxury" clothes; i.e., those over a certain price. This can result in a glut of shoes right at the price break (i.e., if the tax kicks in at £100, then there's a lot of shoes on sale for £99.99).

Answer 3

If you look at the total price people will pay for shoes (tax inclusive), there is no shift in the demand curve. If you look at the pre-tax price people will pay, then these is a shift because the buyer needs to also pay the tax.