These Are the Electric Vehicles That Qualify For a $7,500 Tax Credit

EconEye Admin

3 years ago

Drivers who buy U.S.-produced electric vehicles will receive a $7,500 tax credit this year. Customers who purchase these cars can have the tax credit applied to their 2023 return. The tax credit is designed to encourage more Americans to buy eco-friendly vehicles.—cbsnews.com

Answer the following questions to check your understanding of the story.

1) What is the effect of a tax credit on the price of an electric vehicle?

a) The price paid by buyers falls and the price received by sellers doesn’t change.

b) The price paid by buyers falls and the price received by sellers rises.

c) The price paid by buyers rises and the price received by sellers falls.

d) The price paid by buyers rises and the price received by sellers doesn’t change.

Wrong! - A tax credit given to buyers of electric vehicles raises the amount buyers are willing to pay sellers, so it increases demand. Does the price received by sellers change? The price paid by buyers includes the tax credit. Does the price paid by buyers rise or fall?

Well Done! - A tax credit has the opposite outcome of a tax. A tax credit given to buyers of electric vehicles raises the amount buyers are willing to pay sellers, so it increases demand. An increase in demand raises the price received by sellers but by less than the amount of the tax credit. The price paid by buyers falls to equal the price received by sellers minus the tax credit.

2) Who receives the tax credit?

a) Buyers receive all the tax credit because they claim it on their income tax returns.

b) If the demand for electric cars is elastic, buyers and sellers split the tax credit, but buyers receive more.

c) If the demand for electric cars is elastic, buyers and sellers split the tax credit, but sellers receive more.

d) Sellers receive all the tax credit because they will raise the price of electric cars by the full amount of the tax credit.

Wrong! - How does elasticity influence the distribution of a tax credit? When does the seller receive more of the tax credit? When does the buyer receive more of the tax credit?

Correct! - When demand is elastic, the tax credit raises the price received by sellers more than it lowers the price paid by buyers. Sellers receive more of the tax credit.

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