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Entire tax amount for the consumer

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Reference no: EM132488638

To reduce the climate impact of aviation, Sweden has introduced an air tax. In the state investigation A Swedish flight tax (SOU 2016: 83), it has been estimated that the price elasticity of flights is on average 0.5 and the tax is SEK 60 on domestic tickets within the EU.

a) By how much will domestic air travel decrease if the price is increased by the entire tax amount for the Consumer? Suppose a domestic ticket costs 1200 SEK. Show your calculations!

b) Is the demand for flights price sensitive or price sensitive? How does it affect the effectiveness of the instrument and the tax revenue? (You do not need to calculate anything, it is enough for a reasoning)

c) Discuss the possibility of air tax to affect domestic flight in Sweden. You can start by discussing other factors that may affect the demand for air travel in addition to the price.

Reference no: EM132488638

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