If Elasticity of Demand Is 0

question 19

Multiple Choice

If elasticity of demand is 0.7, elasticity of supply is 0.7, and a 5 percent excise tax is levied on the good:

• A) consumers pay 5 percent of the tax.
• B) sellers pay 5 percent of the tax.
• C) consumers pay 50 percent of the tax.
• D) sellers pay 100 percent of the tax.

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Definitions:

Capital Budgeting Committee

A group within an organization responsible for evaluating and making decisions about long-term investment projects and capital expenditures.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment by calculating the difference between the present value of cash inflows and outflows.

Salvage Value

The estimated value that an asset will realize upon its sale at the end of its useful life.

Sunk Cost

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