Suppose That the Market for Large,64-Ounce Soft Drinks in the Town

question 24

Multiple Choice

Suppose that the market for large,64-ounce soft drinks in the town of Pudgyville is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.The market is initially in equilibrium with 1,000 soft drinks sold per day.The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks.She is considering either a $0.10 tax or a $0.30 tax.Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500.Which tax is better?

• A)The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax.
• B)The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax.
• C)It is not clear which tax is better because although the $0.30 tax raises more tax revenues,it creates a larger deadweight loss than the $0.10 tax.
• D)It is not clear which tax is better because although the $0.10 tax raises more tax revenues,it creates a larger deadweight loss than the $0.30 tax.

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Definitions:

Deontology

An ethical theory that suggests actions are morally right because of their intrinsic properties rather than their outcomes.

Ethical Theory

The systematic examination of morals, involving the analysis of concepts like right and wrong, justice, and virtue.

Situational Ethics

The ethical theory that morality is determined by the specific context of an act rather than by general or absolute rules.

Ethical Dilemma

A situation where an individual faces a choice between two morally right or conflicting principles where choosing one means compromising the other.