An Analysis of the Effect of Excise Taxes on Markets

question 218

Essay

An analysis of the effect of excise taxes on markets allows us to conclude that:
A.when the price elasticity of supply is equal to zero, an excise tax falls entirely on the consumers.
B.when the price elasticity of demand is lower than the price elasticity of supply, an excise tax falls mainly on the producers.
C.whether the tax is levied on consumers or producers, the post-tax quantity sold will be the same.
D.when the price elasticity of demand is higher than the price elasticity of supply, an excise tax falls mainly on the consumers.

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Definitions:

Inflation Rate

The percentage rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Exchange Rate

The price of one country's currency expressed in terms of another country's currency, used for foreign exchange transactions.

Canadian Firm

A business or company that is registered, operates, or is headquartered in Canada.

Subsidiary

A company that is controlled by another company, known as the parent company, often through a majority share of its stocks.