Suppose Buyers of Vodka Are Required to Send $1

question 322

Multiple Choice

Suppose buyers of vodka are required to send $1.00 to the government for every bottle of vodka they buy.Further,suppose this tax causes the effective price received by sellers of vodka to fall by $0.60 per bottle.Which of the following statements is correct?

• A) This tax causes the supply curve for vodka to shift upward by $1.00 at each quantity of vodka.
• B) The price paid by buyers is $0.40 per bottle more than it was before the tax.
• C) Sixty percent of the burden of the tax falls on buyers.
• D) All of the above are correct.

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Definitions:

Elastic Demand

A situation where the demand for a product significantly changes in response to changes in the product's price.

Total Revenue

The sum of money a company earns from selling goods or providing services over a specified time frame.

Inelastic

Describes a situation where the demand or supply for a product does not significantly change with the alteration in price.

Elastic

Describes the sensitivity of demand or supply for a good or service to changes in its price, with higher elasticity indicating greater sensitivity.