Unlike Command and Control, Taxes and Subsidies Allow Firms to

question 60

Multiple Choice

Unlike command and control, taxes and subsidies allow firms to

• A)respond to price or cost changes.
• B)avoid a free-rider problem.
• C)be socially responsible.
• D)raise prices but not output.
• E)lower their transactions costs.

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Definitions:

Sensitivity of Quantity

The responsiveness of the quantity demanded or supplied of a product to changes in its price or other factors.

Sensitivity of Price

The degree to which the price of a product or service impacts consumer demand or the quantity supplied.

Inelastic Demand

Refers to a market situation where the demand for a product does not change significantly in response to a change in price.

Elastic Demand

A market scenario where the quantity demanded of a product or service significantly changes in response to a change in price.