Consider 2 goods: yachts and vegetables. For each good, think of 2 markets: the market for the good itself, and the labor market for people producing those goods. Suppose that the government is considering a 10% tax on yachts and on vegetables.
- In which market for the 2 goods should the consumers have the lesser incidence of the tax?
- Which good should be taxed if the government wanted to minimize effects on employment?
- Suppose that the amount of revenue (P*Q) of yachts and vegetables was the same in the economy. Which should be taxed 10% if the government wanted to raise more revenue?