The city leaders of Lawsona suffered a budget shortfall last year. In their plan

Question

The city leaders of Lawsona suffered a budget shortfall last year. In their planning for the new fiscal year, they feel they can raise the needed revenue by imposing a sales tax on the consumption of the citizens of the community. They are particularly entranced with the possible tax revenue that can be gained from a redeveloped mall in the center of the city. The mall, a joint project between the city and a developer, was rebuilt from the ruins of an abandoned shopping center that had been an eyesore for many years. The new mall serves many of the inner city residents who rely on public transportation and live either below or at the poverty line. The mall has been a huge success and has been hailed as the vanguard of a new revived downtown shopping area. A sales tax, however, would impact to a greater extent the many low- and middle-income shoppers who shop downtown, for they would pay a greater percentage of their income to this tax than wealthier shoppers.

Respond to the scenario, and discuss if the sales tax is a good or bad move for the city of Lawsona. Make sure to clearly state your stance on the situation, and explain in detail your reasoning behind your decision. Support your opinion with concepts from this unit's reading.

Your response should be a minimum of 500 wds in APA . All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.

ORIGINAL WORK PLEASE

Explanation / Answer

The decision of imposing sales tax can be taken based on whether the demand is elastic or inelastic. For commodities which have elastic demand, the increase in price would reduce the quantity demanded to a higher extent and thus the overall revenue reduces. It is not a wise decision to impose the sales tax.

If the commodity has inelastic demand, the increase in price would not reduce the quantity demanded to a high extent and thus the overall revenue increases. It is better to impose the sales tax.

Imposing sales tax is a bad move for the city of Lawsona. This is because the new mall serves many of the inner city residents who rely on public transportation and live either below or at the poverty line. Thus the target shoppers are generally poor people and their demand is quite elastic in nature.This means that imposing the sales tax would raise the price of the commodity, making the commodities expensive. Thus increase in price would result in less quantity demanded.

As the demand is elastic in nature, so the increase in price would bring about much reduction in quantity demanded and thus the overall revenue would decrease. Thus it is not justifiable to impose sales tax for the city of Lawsona, where the demand is elastic in nature and the target shoppers are of below poverty line, as the overall revenue would reduce than increasing.

References

Managerial Economics, H. L Ahuja, S. Chand, 2011

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