Scenario 8.2: Yachts Are Produced by a Perfectly Competitive Industry in Dystopia

question 11

Multiple Choice

Scenario 8.2:
Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic.
-Refer to Scenario 8.2. The result of the tax in the long run will be that:

• A) Q falls from 30,000; P rises by less than $20,000.
• B) Q falls from 30,000; P rises by $20,000.
• C) Q falls from 30,000; P does not change.
• D) Q stays at 30,000; P rises by $20,000.
• E) Q stays at 30,000; P rises by less than $20,000.

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