Suppose That a Policy Maker Knows There Are Currently 1,000

question 9

Multiple Choice

Suppose that a policy maker knows there are currently 1,000 cars purchased each year in the city. In order to build a new park next year, which will cost $500,000, the policy maker decides to impose a tax of $500 on each car purchased. Which of the following scenarios is most likely to occur?

• A) The $500 tax will disincentivize car purchases, and fewer than $500,000 will be raised.
• B) The $500 tax will have no effect on car purchases, and the $500,000 will be raised.
• C) Knowing the purpose of the $500 tax, more people will be incentivized to make car purchases, and the park will be funded.
• D) The $500 tax is a sunk cost and thus will be ignored by people making car purchases.