Economics
Who pays a coffee tax?
The government puts a tax of 50p on every cup of coffee sold, collected from the cafés. Who really pays it?
- Hint 1Draw supply and demand, then shift supply up by the tax.
- Hint 2Who finds it easier to walk away: coffee buyers or coffee sellers?
- The tax raises the cost of each cup, shifting supply up by 50p.
- The price customers pay rises, but usually by less than 50p, and the price cafés keep falls.
- The split depends on elasticities: the side that is less able to change its behaviour bears more of the tax.
- If drinkers are less willing to give up coffee than cafés are to stop selling it, most of it lands on the drinkers.
- Who legally hands over the money does not decide who bears it.
Where it lands: It is shared, and whichever side is less responsive to price pays more of it.
The trap: Saying the café pays because the café sends the money to the government.
What a tutor might ask next: Would the answer change if the tax were collected from customers at the till?
Now do one out loud. In the interview you think aloud with a tutor. Try an Economics problem with hints, follow-ups and Mia's feedback on how you think.