Suppose That There Is a Tax of $5 Per Unit

question 54

Multiple Choice

Suppose that there is a tax of $5 per unit, and the demand curveis more elastic than the supply curve. Which of the followingstatements could be true?

• A)Buyers pay $3 of the tax.
• B)Buyers pay $1 of the tax.
• C)Sellers pay $1 of the tax.
• D)Sellers pay all of the tax.

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Definitions:

Certainty Equivalent Approach

A method used in capital budgeting and investment theory that adjusts future cash flows to account for risk, making them equivalent in value to certain cash flows.

Risky Years

A term not widely recognized in finance; possibly refers to periods of high financial uncertainty or volatility.

Certainty Equivalent Approach

A method of evaluating investments by adjusting future cash flows to reflect the risk, converting them into certain cash flows in present value terms.

Overlay Approach

A strategy used in investing that manages risk by using various hedging techniques to achieve a desired exposure.