Suppose That 75 Percent of a Cigarette Tax Is Borne

question 9

Multiple Choice

Suppose that 75 percent of a cigarette tax is borne by consumers. If the supply elasticity is 1, the demand elasticity is equal to:

• A) 1.
• B) 1/2.
• C) 1/3.
• D) 1/4.

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Definitions:

Inflation Rate

The rise in the overall cost of goods and services across an economy during a certain timeframe, expressed as a percentage.

Comparative Advantage

The capability of a person, business, or nation to generate a product or offer a service with a lesser opportunity cost compared to its rivals.

Absolute Advantage

The ability of an individual, company, or country to produce more of a good or service with the same amount of resources as others.

Production Possibilities

Production possibilities involve the various combinations of different goods or services that can be produced in a given economy with available resources and technology, illustrated by the production possibilities frontier.