How would consumer behavior be changed if the government of Trinidad and Tobago decided to increase the funding for public education by taxing A) families with school-age children or B) vacation...

How would consumer behavior be changed if the government of Trinidad and Tobago decided to increase the funding for public education by taxing A) families with school-age children or B) vacation homes?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In general, a tax on a given item reduces the quantity demanded of that item.  This happens because the tax increases the price of the item.  When the price of a given item goes up, people typically buy less of that item.

However, we must not forget the concept of price elasticity of demand.  People will sometimes simply accept the higher price and continue to demand as much (or almost as much) of the good in question.  When prices rise, people typically continue to buy things that are necessary while refraining from buying things that are luxuries.

In this case, this would mean that people would probably continue to have about as many children as they would have before.  People often feel very strongly about how many children they want and will be willing to make some sacrifices to have those children.  ON the other hand, vacation homes are much less necessary.  In particular, someone considering a vacation home on Trinidad or Tobago could simply buy a home somewhere else if prices went up significantly.

Therefore, the increase in tax on families would probably change behaviors less than the tax on vacation homes.

 

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