Consumers Will Bear a Larger Burden of an Excise Tax

question 87

Multiple Choice

Consumers will bear a larger burden of an excise tax if

• A) demand is relatively elastic and supply is relatively inelastic.
• B) the tax is collected by firms rather than remitted directly to the government by consumers.
• C) both demand and supply are relatively elastic.
• D) both demand and supply are relatively inelastic.
• E) demand is relatively inelastic and supply is relatively elastic.

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Definitions:

Convertible Bond

A financial instrument that can be transformed into a certain number of the issuer's shares at various points in its existence, most often per the discretion of the individual possessing the bond.

Putable Bond

A type of bond that gives the holder the option to require the issuer to repurchase the security before its maturity date at a predetermined price.

American Options

Financial derivatives that can be exercised by the holder at any time before they expire.

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a stock or other financial asset at a specified price within a specific time period.