Eventually, Charlize government would still bear the blame for increasing the cost of living through high taxation rates. Moreover, increased in tax with significant margin will only slice off a demand small size because of the high inelasticity. Setting lower prices for Nugget chicken producers will chase away many suppliers because elastic of supply is relatively flexible. Law of demand and supply stipulates that demand rises as prices drop. Therefore, cupping lower price will cause a shortage for nugget chicken because a sizable number of suppliers will be out of the market as demand sores.
I recommend that Charlie should not use either method in isolation. For instance, applying high tax levy will destroy the brand image. Setting lower prices will chase away chicken nuggets manufactures, which leaves angry consumers and jobless population. Therefore, Charlize should use a multidisciplinary approach that balances averagely high tax and tax reduction that leaves small profit margin for producers. Additionally, she can introduce substitute goods to dilute demand for chicken nuggets. . Effects of Tax and Price Policies on Demand and Supply.
ReferencePoterba, J. (2007). Tax policy and the economy. Cambridge, Mass.: MIT Press.
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