Uncommon Grounds: Who bears the tax burden?

Uncommon Grounds: Who bears the tax burden?

Maria, Norma and Xiaotong

      Uncommon Grounds is Mount Holyoke’s College coffee bar run by the schools the Dining Services. Uncommon Grounds offers a small variety of products, which ranges from cappuccinos, espressos, lattes, mochas, as well as smoothies, milkshakes, malts, and other frozen ice cream drinks to freshly baked bagels, pastries and desserts. It is infamous for its fresh baked goods especially the great Chef Jeff Cookies. Uncommon grounds is committed to serving organic fair trade varietal coffees daily and supporting business around the pioneer valley area thus getting their products from local companies such as: Pierce Bros Coffee, located in Greenfield, Massachusetts,  "Bart's Homemade" Snow's ice cream, produced locally in Greenfield, Massachusetts and Mapleline Farms milk, produced locally in Hadley, Massachusetts.  Uncommon Grounds is also a source of student employment and in fact many students work at uncommon grounds.

      The fall and spring semesters are when students and most faculty is on campus. In this period the demand for the products sold by Uncommon Grounds is quite elastic and it is more elastic than the supply of goods. This is because these goods are non-essentials and students can easily decide to substitute them for other goods.  Most students have budget constraints and to them an increase in the price of coffee, cookies, cupcakes sold in uncommon grounds will probably lead to them consuming less in Uncommon Grounds and going to Rao’s or Thirsty Minds or maybe just decide that they shouldn’t be consuming these goods.

      On the contrary, during the summer there are not as many people on campus and most of them are not Mount Holyoke students or faculty and they are not here for a long period of time. During the summer the demand for these goods is more inelastic than the supply of these goods, consumers might not be very affected by price changes and also consumers do not have as many options to go to.

Uncommon Grounds products include a tax; both consumers and producers distribute this tax burden in this case. During the academic year the school mostly covers the tax burden of Uncommon Ground products because the demand is more elastic than the supply curve. Students are very sensitive to the price so Uncommon Grounds needs to pay more of the tax to keep the price low. However, during the summer, since higher price for the consumer will not reduce the amount of products purchased, Uncommon Ground will pass a greater part of the tax on to the consumers. They will bear most of the tax due to the inelasticity of the demand. Depicted in graph 2 and 3. For example a Chef Jeff chocolate chunk cookie is $1.25 during the school year and the tax is $0.25. The school covers $0.20 of the tax burden whereas the consumers only cover $0.05 of the tax during the summer the school only covers $0.05 of the tax burden and the consumers cover $0.20 of the tax burden.

http://thismatter.com/economics/tax-incidence.htm