You work as a stock analyst. You specialize in analyzing markets for “high-end” manufactured products. The President has recommended that Congress impose a tax of $20,000 on every person who purchases a new yacht. He argues that rich people who can afford to purchase yachts (they cost around $2,000,000 each) should pay higher taxes. The money raised would be used to provide additional benefits to returning war veterans.
You are writing a research report on the firms that manufacture yachts. You want to include a statement in the report about whether you think the proposal is likely to pass Congress and become law. You have analyzed the proposal and the voting records of members of Congress. You have decided that the proposal will not obtain enough votes to pass Congress, unless the major labor unions representing employees in this industry support it. You know that many of the yacht-producing firms hire veterans who could benefit from the programs funded by the tax.
1. Draw a standard supply and demand diagram depicting the market for yachts prior to the tax.
2. Analyze the effects of imposing a $25,000 per yacht tax on consumers (on a qualitative basis).
3. Based on this analysis, do you think that the labor unions will support the proposed tax? Explain. What does it depend upon?
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