Question: In 2004, the city of Cologne, Germany instituted a "pleasure tax." Among other things, the tax applied to massage parlors, table-dancing clubs, and brothels. Many sex workers complained that the tax was unjust because it was levied on them rather than on the men who patronize their services. One sex worker said "I can't increase what I charge" to make up for the tax increase.
a. Implicit in the sex workers assertion is an assumption about the elasticity of demand for her services. What is that assumption and do you think it is realistic?
b. What would be the economic implications for sex workers if the tax was instead levied on their patrons?