Suppose Sellers of Cologne Are Required to Send $2

question 156

Multiple Choice

Suppose sellers of cologne are required to send $2.25 to the government for every bottle of cologne they sell. Further, suppose this tax causes the price paid by buyers of cologne to rise by $1.35 per bottle. Which of the following statements is correct?

• A)The effective price received by sellers is $0.90 per bottle less than it was before the tax.
• B)Sixty percent of the burden of the tax falls on sellers.
• C)This tax causes the demand curve for cologne to shift downward by $2.25 at each quantity of cologne.
• D)This tax does not change the quantity of cologne bought and sold.

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Definitions:

Trade Discount

A reduction in the listed price of a product or service offered by a seller to a buyer in the same trade.

Suggested Retail Price

The price that manufacturers recommend retailers to sell their products for to consumers, often seen as MSRP (Manufacturer's Suggested Retail Price).

Cash Discounts

A reduction in the price of goods or services offered to buyers as an incentive for early payment or payment in cash.

Quantity Discounts

Price reductions based on the volume or amount of product purchased, incentivizing bulk buying.