Suppose Elasticity of Demand Is 1, Elasticity of Supply Is

question 134

Multiple Choice

Suppose elasticity of demand is 1, elasticity of supply is 2, and a 5 percent excise tax is levied on consumers. Which of the following changes will reduce the burden of the tax on consumers?

• A) Elasticity of demand falls to 0.
• B) Elasticity of demand rises to 2.
• C) Taxing authorities levy the tax on suppliers.
• D) Nothing will change the burden of the tax.

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Definitions:

Economic Value

The worth of a good or service determined by its utility and the market demand, influencing its price.

Signing Bonus

A financial incentive given to a new employee as an inducement to join the company.

Equivalent Value

The same worth or monetary value as something else.

Rate of Return

The positive or negative financial outcome on an investment through a specific duration, indicated as a percent of the cost of the investment.