If the Demand for Cigarettes Is Inelastic, a Per-Unit Tax

question 56

Multiple Choice

If the demand for cigarettes is inelastic, a per-unit tax on cigarettes will cause the quantity demanded to:

• A) fall proportionally more than the increase in price caused by the tax.
• B) fall proportionally less than the increase in price caused by the tax.
• C) rise proportionally more than the increase in price caused by the tax.
• D) rise proportionally less than the increase in price caused by the tax.

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Definitions:

Percentage Of Sale

A commission structure where payment is based on a percentage of the sales made.

Prestige Pricing

A pricing strategy where prices are set higher than average to present the image of exclusivity and high quality.

Pricing Strategy

An approach or method used by a business to determine the best price for its products or services to maximize profitability and meet customer and market demand.

Breakeven Analysis

A financial calculation to determine the number of units or revenue needed to cover total costs, at which point a business neither makes a profit nor suffers a loss.