Assume the Demand for Automobile Tires Is Highly Inelastic and That

question 215

Multiple Choice

Assume the demand for automobile tires is highly inelastic and that the supply is highly elastic. The burden of a $2 excise tax on each tire will be

• A)borne by resource suppliers that provide the inputs for manufacturing tires.
• B)shared about equally by buyers and sellers of tires.
• C)borne primarily by buyers of tires.
• D)borne primarily by sellers of tires.

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Definitions:

Leisure

Free time when one is not working or occupied; time available for ease, relaxation, and activities one enjoys.

Substitution Effect

Changes in what consumers purchase, brought about by alterations in the relative costs of goods, persuading consumers to opt for alternatives over their usual choices.

Income Effect

The correlation between income changes in an economy or for individuals and their effect on the quantity of goods and services demanded.

Opportunity Cost

The value of the next best alternative that is foregone when a decision is made to choose one option over another.