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The point was: If they have the power to increase prices because taxes increased, then why do they not increase prices because they want to earn more? If they d
by mafuy 6y ago
The point was: If they have the power to increase prices because taxes increased, then why do they not increase prices because they want to earn more? If they do have the power, they should get as much as possible! And that's the thing: Their power is limited to what is possible. That's the free market at work actually.
Increasing taxes would certainly increase prices, but not fully compensate.
- ddxxdd 6y agoThe answer to your query is supply and demand; if taxes go up, then (ceteris paribus) the supply curve shifts upward. It costs more money to make the same product, so either the price must go up, the quantity sold must go down, or some combination of the two. In the case of a redistributional policy, that upward supply shift is matched with an upward demand shift, and prices will definitely rise to at least partially reverse the effects of the taxation-based redistribution.