Consider a 10- Percent Excise Tax That Is Similarly Applied

question 79

Multiple Choice

Consider a 10- percent excise tax that is similarly applied to good X, which has a price elasticity of 2.7, and to good Y, that has a price elasticity of 0.6. We can predict that the excess burden of this tax in the market for good X will be the excess burden in the market for good Y.

• A) no larger than
• B) 2.1 times the size of
• C) smaller than
• D) equal to
• E) larger than

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time.

Externality

A consequence of an economic activity experienced by unrelated third parties; it can be positive or negative.

Sunk Cost

Expenses that have already been incurred and cannot be recovered, and should not influence future business decisions.

Operating Cash Flow

The cash generated by a company's normal business operations, indicating whether a company can maintain or grow its operations without external financing.