Suppose an Excise Tax Is Imposed on Two Products X

question 61

Multiple Choice

Suppose an excise tax is imposed on two products X and Y, both of which have identical supply elasticities. The demand for good X is highly elastic, while the demand for good Y is highly inelastic. The deadweight loss (or excess burden) will be

• A) equal in both cases.
• B) larger for good X than good Y.
• C) larger for good Y than good X.
• D) zero in both cases.

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Definitions:

Lewis Structure

A graphical representation that depicts the bonding between atoms of a molecule and the lone pairs of electrons that may exist.

Pentane

A volatile, flammable hydrocarbon compound that exists as a colorless liquid, used in various chemical and fuel applications.

Lewis Structure

A visual representation that shows the valence electrons of atoms within a molecule, helping to predict the arrangement of atoms, bond formation, and molecular shape.

Ethane

A colorless, odorless gas with the formula C2H6, used as a fuel and as a feedstock for the production of chemicals.