A Tax Is Levied on Products a and B, Both

question 283

Multiple Choice

A tax is levied on products A and B, both of which have the same price elasticity of supply. The demand for A is more inelastic than is the demand for B. Other things constant, how will this affect the incidence of an excise tax on these products?

• A) Producers will bear a smaller share (and consumers a larger share) of the tax burden on A than B.
• B) Consumers will bear a smaller share (and producers a larger share) of the tax burden on A than B.
• C) The deadweight loss (or excess burden) will be larger for good A than B.
• D) All of the above are true.

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Definitions:

Dependent Variable

A variable in an experiment or study that is expected to change in response to changes in another variable (the independent variable).

Holding Constant

Holding constant is a method used in analysis where certain variables are kept unchanged in order to isolate the effects of other variables.

Independent Variables

Variables in a statistical model that are presumed to influence or cause changes in another variable, without being affected by it.

Increase

Increase refers to the action of becoming larger or greater in size, number, value, or amount.