Practice Questions
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If a government imposes a tax on a good with relatively inelastic demand, who is more likely to bear the burden of the tax?
When demand is inelastic, people will still buy the good even if the price goes up. Other options are incorrect because Some might think producers pay...
If a government imposes a tax on a good with inelastic demand, what is likely to happen to the total revenue collected from that tax?
When demand is inelastic, people will keep buying the good even if the price goes up. Other options are incorrect because Some might think that higher...
How does an increase in taxation on a good with elastic demand affect consumer surplus and deadweight loss?
When taxes go up on a product that people can easily find substitutes for, people buy less. Other options are incorrect because Some might think that ...
In the context of taxation, how does the elasticity of demand affect the distribution of the tax burden between consumers and producers when a tax is imposed on a good with inelastic demand?
When demand is inelastic, consumers really need the product. Other options are incorrect because This idea suggests that producers would pay more of t...
How does the elasticity of demand affect the incidence of a tax imposed on a good, and what are its implications for consumer surplus when demand shifts?
When demand is inelastic, consumers are less sensitive to price changes. Other options are incorrect because This suggests consumers pay all the tax, ...
If the price of a good increases and the quantity demanded decreases significantly, what does this indicate about the price elasticity of demand for that good?
When the price goes up and people buy much less, it shows they are sensitive to price changes. Other options are incorrect because Some might think in...
What is the income elasticity of demand for a normal good when a 10% increase in income results in a 15% increase in quantity demanded?
The income elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in income. Other options...
If the cross-price elasticity of demand between two goods X and Y is positive, what does it indicate about the relationship between the two goods?
A positive cross-price elasticity means that when the price of one good goes up, the demand for the other good also goes up. Other options are incorre...
If the government imposes a per-unit tax on a good with inelastic demand, what is the most likely effect on the quantity demanded of that good?
When demand is inelastic, people still buy the good even if the price goes up. Other options are incorrect because Some might think that a tax will sc...
A local government imposes a per-unit tax on cigarettes, which are known to have inelastic demand. Given this information, which of the following statements best describes the expected impact of this tax on cigarette consumption and revenue?
Cigarettes have inelastic demand, meaning people will keep buying them even if prices go up. Other options are incorrect because This answer assumes t...
A government decides to impose a per-unit tax on a highly inelastic good, such as insulin for diabetics. How would you classify the impact of this tax on consumer behavior and market dynamics compared to a similar tax on a highly elastic good, such as luxury watches?
Insulin is a necessity for diabetics, so people will still buy it even if the price goes up. Other options are incorrect because This answer suggests ...
If a government imposes a tax on a good with inelastic demand, what is the likely impact on consumer behavior and tax revenue?
When demand is inelastic, people keep buying the product even if the price goes up. Other options are incorrect because Some might think that higher p...
Arrange the following steps in the process of understanding how taxation affects demand elasticity: A) Identify the elasticity of demand for a product B) Analyze the impact of taxation on quantity demanded C) Determine the tax burden on buyers and sellers D) Evaluate market dynamics post-taxation
First, we need to know how sensitive demand is to price changes. Other options are incorrect because This order starts with analyzing the impact of ta...
In the context of elasticity of demand and taxation, if the relationship between price increase and quantity demanded is similar to the relationship between a steep hill and a bicycle's speed, what would represent a flat road?
Elastic demand means that when prices go up, people buy much less. Other options are incorrect because Some might think inelastic demand means people ...
Which of the following statements accurately describe the impact of elasticity of demand on the incidence of taxation? Select all that apply.
Other options are incorrect because Some might think that if demand is inelastic, consumers will bear the tax burden; It is a common belief that a tax...
How does the elasticity of demand for a product influence the burden of a per-unit tax imposed on it?
When demand is inelastic, people still buy the product even if the price goes up. Other options are incorrect because This idea suggests sellers alway...
When demand for a good is __________, consumers will continue to purchase it even if the price increases significantly due to a tax, whereas if the demand is elastic, their purchases will drop considerably.
Inelastic demand means people need the good, so they buy it even if the price goes up. Other options are incorrect because Elastic demand means people...
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