The local governments of town A and town B need to raise revenue. In town A, the government imposes a sales tax while in town B the government imposes a lump-sum tax on businesses (lump-sum tax is a fixed amount per year regardless of sales).

Suppose the business firms in these towns are maximizing profits. (You might need a graph or graphs to answer the following question, but you do not need to include them in your answer)

What would you expect businesses in town A to do in response to the tax? Would the price of the taxed items rise in town A? Why? Explain your answer

What would you expect businesses in town B to do in response to the tax? Would the price of the taxed items rise in town B? Why? Explain your answer