A Government Is Considering Levying an Alcohol Tax to Raise

question 165

Multiple Choice

A government is considering levying an alcohol tax to raise revenue to finance health care benefits. People for the tax argue that alcohol demand is price inelastic. Which of the following statements is true?

• A) The alcohol tax may not raise as much revenue as anticipated in the years to come because alcohol demand is more elastic the longer the period of time consumers have to adjust.
• B) This is a very good way to raise revenue both in the short term and in the long term because there are no close substitutes for alcohol.
• C) This tax will not raise much revenue either in the short term or the long term because demand is price inelastic.
• D) No tax revenue can be raised in this way because alcohol sellers will just lower their price by the amount of the tax, and therefore the consumer price of alcohol will not change.

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Definitions:

Interest

The charge for borrowing money or the return on investment in savings accounts or bonds, typically expressed as a percentage.

Living Standard

The degree of prosperity, ease, physical items, and essential needs accessible to an individual, community, or social group.

Per Capita

A statistical measure that divides a total figure by the population number, providing an average per person.

Real GDP

Gross Domestic Product adjusted for inflation, measuring the value of all goods and services produced by an economy in real terms.