A Government Plans to Implement a $1 Tax in One

question 129

Multiple Choice

A government plans to implement a $1 tax in one of two markets: the first market has elastic supply and demand curves and the second market has inelastic supply and demand curves. If the government's aim is to raise the most revenue with the smallest deadweight loss, where should the tax be placed?

• A) In the market with elastic supply and demand curves.
• B) In the market with inelastic supply and demand curves.
• C) It is impossible to say without more information.
• D) Since the burden is shared, it doesn't matter in which market the tax is placed.

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Definitions:

Franchise Contracts

Legal agreements granting the right to operate a business under the franchisor's brand and systems in exchange for fees or royalties.

Limited Partnership

A form of partnership consisting of at least one general partner, who manages the business and is liable for debts, and one or more limited partners, who invest but do not manage and have limited liability.

General Partner(s)

Individuals in a partnership who have unlimited liability and are involved in the day-to-day management of the business.

Limited Partner(s)

Investors in a partnership who have limited liability to the extent of their investment and do not participate in day-to-day management.