Believe iot or not, it's not just "wet behind the ears", even seasoned political hacks** such as BobF will tell you that increasing taxes on a business won't necessarily mean an increase in the price of the product or service that business provides. **Ok, so "hack" is not the correct term for what BobF is, but it's Friday so give me a break.
So the market does not set the prices based on supply and demand? That means the cornerstone tenet of capaitalism is false ... when it comes to explaining taxes.
Did I say it was the ONLY component??? Do you really think a giant corporation concerned with the bottom line is going to just absorb the extra taxes with their profits?
Yes, that is exactly what they do if the theory of the market basing the price is correct. If it is not then capital ism is not working as it is supposed to do.
That really depends on the supply of the product and the demand for the product. Increasing the cost of production, whether through taxes or other costs, will generally result in a decline in supply, which in turn results in an increase in price. But producers cannot simply "pass on" increased taxes in the price of their products. If the market is working properly, they are already selling the product at the price that gives them the best return. If they increase the price, that will have the effect of reducing demand, and the equilibrium may very well fall at a point where they make less profit than if they had absorbed the cost themselves. Generally, producers will absorb at least a portion of the increased tax, in their own self interest, not for any altruistic reasons.
http://www.investopedia.com/university/economics/economics3.asp Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand. The relationship between demand and supply underlie the forces behind the allocation of resources. In market economy theories, demand and supply theory will allocate resources in the most efficient way possible. How? Let us take a closer look at the law of demand and the law of supply.
You mean the one where you can charge whatever you want to keep your profits up? That would be the one where no busieness ever went bankrupt because they always could make a profit, right?
No I am not. I am talking on your level. When we were giving you information on the real world, you were the one talking of lands of puppies and rainbows which is not an extreme? :?
Lets give a real world example, I have been running this one company for almost twenty years. We pay the health insurance premiums for the employee, but not the family. Over the years the cost of that coverage has increased by double digits every year, which meant we either lowered the level of coverage or took the hit on cost. If we were in the "land of puppies and rainbows" all I would have to do is raise my prices to offset this increase thus maintaining my profit level. The problem is the effect of the price on demand means that if my prices are not in line with what the market will pay I will actually make less money because sales will drop off. So, if anyone can explain how to raise a price that is not already lower than the market will bear, they can make a fotune selling it to business ... once they can prove it works.
I don't need any explanations, Wayne. My point is, these companies are not going to just eat that tab with a smile like you think. It will be offset somehow. By pricing, by tax loopholes, by any means necessary.
No, they will not smile, nor will they be able to raise the prices to offset the taxes, partially since the market will not allow it and partially because they will not know what the tax burden will be until the end of the year. They may try to find a loophole but if those are closed they will pay their taxes.
That's the way it use to work. Now it's drive the price up till we blow this thing up and then we'll get congress to buy out all our bad debt with the peoples money that we're screwing.
