Suppose Elasticity of Demand Is 0

question 96

Multiple Choice

Suppose elasticity of demand is 0.2, elasticity of supply is 0.7, and a 10 percent excise tax is levied on producers. Which of the following changes will reduce the share of the tax paid by consumers?

• A) Elasticity of supply falls to 0.3.
• B) Elasticity of demand falls to 0.1.
• C) The tax is increased to 20 percent.
• D) Nothing will change the burden of the tax.

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Definitions:

Creating Hypotheses

The process of forming testable statements or predictions based on theoretical insights or observations.

Observation

The process of monitoring or noting phenomena with the aim of collecting data or arriving at conclusions.

Application

The act of putting something to use or implementing a concept, method, or device for a particular purpose.

Parsimony

The principle or idea of simplicity, especially in scientific explanations, by preferring the least complicated explanation.