Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 5

Suppose that the U.S. government begins charging a $1 sales tax to all consumers for each dress shirt they buy.
a. What is likely to happen to the price (not including the tax) and quantity demanded of dress shirts Show using supply and demand graphs.
b. What is likely to happen to the demand for sport shirts (not taxed) and undershirts (which are worn primarily with dress shirts) Explain.