Suppose a Tax Is Imposed on Bananas

question 8

Multiple Choice

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

• A)The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak.
• B)The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak.
• C)The response of buyers and sellers to a change in the price of bananas is strong.
• D)The response of buyers and sellers to a change in the price of bananas is weak.

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Definitions:

Yield To Maturity

The cumulative earnings forecasted from a bond assuming it is kept until its expiration date.

Annual Coupon

The yearly interest payment made to bondholders, generally expressed as a percentage of the bond's face value.

Face Value

The face value or the amount in dollars shown on a bond, note, or any financial instrument, representing its value upon reaching maturity.

Current Yield

A financial ratio that calculates the annual interest or dividends received from an investment as a percentage of the current market price.