Suppose the Equilibrium Price of Textbooks Is $40 a Textbook

question 86

Multiple Choice

Suppose the equilibrium price of textbooks is $40 a textbook. At that price, the quantity of textbooks demanded and supplied is 20,000. If a $5 tax per textbook paid by consumers increases the price paid by consumers to $42 a textbook and reduces the equilibrium quantity sold to 18,000, elasticity of:

• A) demand is 1.3 and elasticity of supply is 2.0. Consumers pay a larger portion of the tax.
• B) demand is 0.7 and elasticity of supply is 0.5. Consumers pay a smaller portion of the tax.
• C) supply is 1.3 and elasticity of demand is 2.0. Suppliers pay a larger portion of the tax.
• D) supply is 0.7 and elasticity of demand is 0.5. Suppliers pay a smaller portion of the tax.

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Definitions:

Payout Ratio

A financial metric indicating the proportion of earnings a company pays to its shareholders in dividends, expressed as a percentage of the company's net income.

Times Interest Earned

Times Interest Earned is a financial metric that measures a company's ability to meet its interest obligations, calculated as earnings before interest and taxes divided by interest expense.

Inventory Turnover

A ratio indicating how often a company sells and replaces its stock of goods during a period, calculated as cost of goods sold divided by average inventory.

Cost of Goods Sold

The exact costs incurred in the creation of a company’s sold goods, including the expenses for materials and labor.