Assuming the Demand Curve Is More Elastic (Flatter) Than the Supply

question 26

Multiple Choice

Assuming the demand curve is more elastic (flatter) than the supply curve, which of the following is true ?

• A) The full tax is always passed to the consumer no matter how flat (elastic) the demand curve is.
• B) The full tax is always passed to the seller no matter how flat (elastic) the demand curve is.
• C) The smaller the portion of a sales tax that is passed to the consumer.
• D) It does not make any difference how flat (elastic) the demand curve is; the tax is always split evenly between buyer and seller.

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Definitions:

ESOs

Employee Stock Options, which are a form of equity compensation granted by companies to their employees as part of their remuneration package.

Guarantee

An assurance or formal promise that specific conditions will be fulfilled, often related to the quality, durability, or functionality of a product or service.

Overallotment Provisions

Options in securities underwriting that allow underwriters to sell more shares than initially planned, useful in managing demand and stabilizing the market price post-listing.

Implicit Call Option

A provision in a financial contract that gives the issuer the right, but not the obligation, to take a specified action under certain conditions, often found in bonds.