Economics Research Paper Sample on Sales Tax Exemption

Sales Tax Exemption

Question one

Sales tax exemption entails ‘being freed’, or not being subjected to any form of sales taxation or regulation by the relevant authorities. Most governments around the world will use this as a viable policy through which they can encourage possible investments. Notably, when the demand for electric vehicles is said to be elastic, it means that other factors change, for instance, prices and the quantity demanded. Inelastic supply implies that the distribution of motor vehicles does not change when other factors such as price changes (Henke, Gernot and Norbert 657). Introducing taxes or failing to extend sales tax indemnity for electric cars will affect the sales of these viable commodities.  

The effect on sales is because of imposed taxes, the cost of producing a car will increase considerably (Henke, Gernot and Norbert 658). The corporation will then be obliged to raise the prices of the product to curb the extra cost of procedure (taxes). Given that the demand is elastic, the consumers will react to this increase in prices and will reduce the consumption of the commodities (Henke, Gernot and Norbert 659). The company is likely to maintain its production capability since supply is inelastic, but the sales will decline considerably.   

Question two

Imposing a sales tax on electric vehicles will affect the prices of the product. Since demand is elastic, sales tax will reduce the demand while supply will not change (inelastic) (Henke, Gernot and Norbert 664). The consumers have the alternative to buying the conventional vehicles instead of the proposed ones (Henke, Gernot and Norbert 664). Most of the buyers will incline towards cheaper products and are more responsive to any rise in prices. Sales tax will consequently lead to an increase in production costs. The producers are prompted to curb this increase in expenditure in whatever manner possible so as not to record losses.

The best possible way will be to increase prices of the product leading to a consequent decrease in sales. Notably, the sellers will be more likely to bear the tax burden compared to the buyers (Henke, Gernot and Norbert 667). This can be attributed to the fact that the buyers have an alternative that is relatively cheap (conventional vehicles) and are not obliged to purchase the products. The sellers, however, are under pressure to produce products (supply elastic) that are unique in both price and quality (Henke, Gernot and Norbert 669).                     

Question three

In essence, the alternative clean fuel tax exemption should be extended based on some reasons subsequently discussed in this document (Hackney 33). The primary reason given by most people spins around keeping our setting ‘free’ and ‘healthy’. Electric vehicles are considered environment-friendly, as they do not discharge the toxic carbon wastes common among ‘normal’ motor vehicles (Hackney 35). When manufacturers specialized in the production of electric vehicles are exempted from paying taxes, the result will be a reduction in their expenditures (Hackney 37).

As such, the company will reduce the prices of these essential commodities to ‘manageable’ levels. When most consumers can afford electric vehicles, the conventional ones will be phased out most likely. From an economic viewpoint, however, extending tax exemption may result in a market monopoly by the electric vehicles and therefore, a bad idea. Introducing taxes will allow some levels of competition with the conventional vehicles eliminating potential monopoly (Hackney 39).

                                                                   Work Cited

Hackney, Philip T. “What We Talk About When We Talk About Tax Exemption.” Virginia Tax Review 33 (2013).

Henke, Jan M., Gernot Klepper, and Norbert Schmitz. “Tax exemption for biofuels in Germany: Colombo, John D. “Marketing of Philanthropy and the Charitable Contributions Deduction; Integrating Theories for the Deduction and Tax Exemption, The.” Wake Forest L. Rev. 36 (2001): 657.

Is bio-ethanol really an option for climate policy?.” Energy 30.14 (2005): 2617-2635.