Good a Has a Price Elasticity of Demand of

question 74

Multiple Choice

Good A has a price elasticity of demand of .27, while good B has a price elasticity of demand of 2.9. To raise the most tax revenue, the government should:

• A) place a unit tax on good A.
• B) place a unit tax on good B.
• C) raise the price elasticity of demand for good A.
• D) subsidize the production of good B.
• E) cut its spending for various social programs.

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Definitions:

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenues, indicating the company's profit.

Selling Price

The amount of money charged to the customer for a product or service.

Variable Manufacturing Costs

These are costs that vary directly with the level of production output, including expenses like raw materials and variable labor costs.

Fixed Manufacturing Overhead

Costs that do not vary with the level of production output and include expenses such as rent, property taxes, and salaries for permanent staff.