Practice Questions
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If the demand for a product is inelastic, how will a tax imposed on that product affect its price and quantity sold?
When demand is inelastic, people still buy the product even if the price goes up. Other options are incorrect because This answer suggests a big price...
If the government imposes a tax on a product with inelastic demand, how is the tax burden likely to be distributed between consumers and producers?
When demand is inelastic, consumers really need the product. Other options are incorrect because Some might think producers pay more of the tax; It's ...
If the supply of a good is perfectly inelastic and the income elasticity of demand for that good is positive, what will be the effect of an increase in consumer income on the market equilibrium price of the good?
When income goes up, people want more of the good. Other options are incorrect because Some might think that more income means lower prices; It's a co...
In a market where the demand for a product is inelastic and the supply is perfectly elastic, how will a tax imposed on the product affect the price consumers pay compared to the price producers receive?
When demand is inelastic, consumers will keep buying even if prices go up. Other options are incorrect because This suggests that prices stay the same...
How does the price elasticity of demand affect the burden of a tax imposed on a good, particularly in terms of the consumer's share of the tax burden?
When demand is inelastic, consumers really need the good. Other options are incorrect because This option suggests that if demand is elastic, consumer...
If the price elasticity of demand for a good is greater than 1, what does this indicate about the good's demand in response to price changes?
When demand is elastic, it means that people buy a lot less if the price goes up. Other options are incorrect because This option suggests that demand...
If the price elasticity of supply is relatively high, how will producers respond to a tax imposed on a good?
When supply is elastic, producers can quickly change how much they make. Other options are incorrect because Some might think producers will just rais...
What does a positive income elasticity of demand indicate about a good?
A positive income elasticity means that when people earn more money, they buy more of this good. Other options are incorrect because An inferior good ...
Which of the following statements correctly describe the relationship between elasticity and tax incidence? Select all that apply.
Other options are incorrect because This statement is wrong because when demand is elastic, consumers can easily switch to other products; This is inc...
In the context of tax incidence, if the elasticity of demand is to the responsiveness of quantity demanded as the elasticity of supply is to the responsiveness of quantity supplied, then how can the burden of a tax be similarly expressed? A: The burden of the tax is shared based on the relative elasticities of demand and supply. B: The burden of the tax falls entirely on consumers regardless of elasticity. C: The burden of the tax is always equal for both consumers and producers. D: The burden of the tax is irrelevant to the elasticity of demand or supply.
The burden of a tax is shared between consumers and producers. Other options are incorrect because This idea suggests that only consumers pay the tax;...
How does the elasticity of demand affect the burden of a tax on consumers?
When demand is less elastic, consumers are less sensitive to price changes. Other options are incorrect because Some might think that if demand is ela...
In a market with perfectly inelastic demand, how does the tax burden change between consumers and producers?
When demand is perfectly inelastic, consumers will buy the same amount no matter the price. Other options are incorrect because This option suggests t...
A government imposes a tax on the sale of cocoa to reduce consumption for health reasons. In this market, the demand for cocoa is elastic while the supply is inelastic. How will the tax incidence be distributed between consumers and producers, and what will be the likely impact on deadweight loss?
Consumers will pay most of the tax because they can easily change their buying habits. Other options are incorrect because This option suggests produc...
In the context of elasticity and tax incidence, when demand is _____, consumers bear a larger share of the tax burden as their quantity demanded is less responsive to price changes.
When demand is inelastic, people still buy the product even if the price goes up. Other options are incorrect because Some might think that if demand ...
Arrange the following steps in the correct order to understand the impact of a tax on market efficiency and its incidence based on elasticity: A. Determine the elasticities of supply and demand. B. Analyze how the tax burden is shared between consumers and producers. C. Assess the resulting deadweight loss in the market. D. Evaluate the overall market outcomes from government intervention.
First, we need to know how sensitive supply and demand are to price changes. Other options are incorrect because This order starts with analyzing the ...
If a tax is introduced in a market with highly elastic demand and inelastic supply, what is the most likely effect on the tax burden distribution between consumers and producers?
Producers will pay most of the tax. Other options are incorrect because This answer suggests consumers pay more because they are sensitive to price; T...
A government decides to impose a tax on sugary drinks. Which of the following outcomes best illustrates the concept of tax incidence relating to elasticity?
The tax burden is shared between consumers and producers. Other options are incorrect because This suggests producers lower prices to keep sales, but ...
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