Question

If the federal government wanted to tax a good and suppliers were strong lobbyists, but consumers were not, would government prefer supply or demand to be more inelastic?

Why?

Answer 1

Under the given circumstances,the government prefers the demand to be more elastic.

Step-by-step explanation:

• A strong lobby or political influence of the suppliers in the market implies that the suppliers are more likely to be reluctant or unwilling to accept the imposition of tax on production as it will increase their production cost potentially.
• This indicates that suppliers in the market are relatively responsive or considerably sensitive to any price change of the concerned product or good,implying that they are relatively price sensitive or responsive or the supply of the concerned good or product is relatively elastic.
• Now,on the other hand,absence of any such strong political groupism or lobbyist group by the consumers somehow indicate that they are relatively less responsive or sensitive towards any potential price change of the concerned product or good as compared to the suppliers in the market.
• Therefore,based on the information provided in the question,it can be reasonably inferred that the price elasticity of demand is relatively less elastic than the elasticity of supply pertaining to the concerned good or product and the consumers will be comparatively more willing to accept the government tax as opposed to the suppliers.Hence, it will be easier for the government to impose the proposed tax on the consumers rather than on suppliers,as any consequent price increase of the product or good would not affect the consumers as much as it would to the suppliers if the production cost rises due to tax imposition.