Question

A1 Amazon.com

Until​ 2012, California,​ Texas, and Pennsylvania required firms to collect sales taxes for online sales if the chain had a physical presence​ (a "brick" store as opposed to a​ "click" store) in those states.  

​Thus, those states collected taxes on Best​ Buy's online​ sales, because it had stores in each of those​ states, but they did not collect taxes from Amazon.com because it did not have physical locations in those states.  

Starting in​ 2012, Amazon had to pay taxes in these states. According to Baugh et al.​ (2015), consumers living in states that collected sales tax during checkout reduced Amazon purchases by​ 11%. After the tax was imposed on​ Amazon, Best Buy had a​4% to​ 6% increase in its online sales in those states relative to the rest of the chain.

​Source:www.bizjournals.com/twincities/news/2013/01/11/best-buys-online-sales-up-in-states.thml

Use an​ indifference-curve/budget-line diagram to show why Best​ Buy's sales rose after taxes were imposed on Amazon.

​1.) Using the line drawing tool​, draw a new budget line representing the tax on Amazon.com. Label this line

​'Upper L squared L2​.'

​2.) Using the​ three-point curved line drawing tool​, draw a new indifference curve on which the consumer maximizes utility with the tax on Amazon.com. Label this curve 'Upper I squared I2​.'

​3.) Using the point drawing tool​, indicate the new optimal consumption bundle on the new budget line. Label this point 'e 2 e2​.'

Carefully follow the instructions​ above, and only draw the required objects.

Answer 1

This Until 2012, California, Texas, and Pennsylvania required firms to collect sales taxes for online sales if the chain had a physical presence in those states Thus, those states collected taxes on Best Buy's online sales because it had stores in each of those states, but they did not collect taxes from Amazon.com It did not have physical locations in those states It was Starting in 2012, Amazon had to pay taxes in these states After the tax was imposed on Amazon, Best Buy had a 4% to 6% increase in its online sales in those states relative to the rest of the chain Assume that the consumer is making purchases from both Am and BB at the current equilibrium with the given budget line BC and the indifference curve I_1 the optimal consumption bundle purchased is (a_1, x_1) this is illustrated by the figure good from BB: - note that the consumers are buying more from Am that