If There Is a $1 Per Box Tax Imposed on the Sale

question 21

Multiple Choice

If there is a $1 per box tax imposed on the sale of tea and the price paid by consumers increases by $0.50, what may we conclude about the price elasticities of demand and supply?

• A)The elasticity of supply must be less than the price elasticity of demand
• B)The amount exchanged in the market will remain the same
• C)The elasticity of supply must be greater than the price elasticity of demand
• D)The elasticity of supply must be equal to the elasticity of demand
• E)We need more information to answer the question

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Definitions:

Price Rise

An increase in the cost of goods or services, often reflecting factors like inflation, increased production costs, or higher demand.

Real Factors

Real factors typically refer to tangible inputs and conditions affecting economic outcomes, such as resources, technology, and workforce skills, as opposed to financial inputs.

Quantity Theory

An economic theory proposing a direct relationship between the amount of money in an economy and the level of prices of goods and services.

Money Supply

The comprehensive sum of available financial assets within an economy at a designated moment.