a. Explain why it is “easy to see why shopping overseas is so popular” with wealthy Chinese shoppers.
b. Who pays most of the Chinese luxury tax: sellers or buyers? Explain your answer.
c. Explain how a cut in China’s luxury tax rate will change the quantity of luxury goods purchased in China.
Last year Chinese tourists bought almost two-thirds of luxury goods sold in Europe. If you look at China’s luxury goods tax, it is easy to see why shopping overseas is so popular. According to the Chinese Ministry of Commerce, prices for luxury goods in China are 45% higher than in Hong Kong, 51% higher than the United States, and 72% higher than France.