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:

Cost of Capital

The cost of funds used for financing a business, including the rate of return that investors demand for providing capital.

Cash Flows

The comprehensive total of financial resources entering and leaving a business, significantly affecting its ability to cover immediate and short-term obligations.

Marginal Costs

The monetary cost of generating one more unit of a product or service.

Fixed Costs

Expenses that remain constant regardless of the amount of goods produced or sold, including items like lease payments, wages, and insurance fees.