An Excise Tax Is Imposed on Smartphones

question 68

Multiple Choice

An excise tax is imposed on smartphones. If the elasticity of demand is 2 and the elasticity of supply is 1, we can predict that:

• A) consumers will bear the full tax burden.
• B) sellers will bear the full tax burden.
• C) consumers will bear 2/3 of the tax burden.
• D) sellers will bear 2/3 of the tax burden.

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Definitions:

Money Supply

The aggregate sum of funds present in an economy at a given moment, encompassing cash, bank deposits, and various readily accessible assets.

Interest Rate

The percentage of a sum of money charged for its use, often expressed as an annual percentage.

Reserve Requirements

The minimum proportion of customer deposits and notes that a bank must hold as reserves rather than lending out, as mandated by central banking authorities.

Government Bonds

Securities issued by a government to finance its expenditures, offering regular interest payments and the return of the original investment at maturity.