If the Supply of Capital Is Perfectly Elastic,a Tax on Capital

question 38

Multiple Choice

If the supply of capital is perfectly elastic,a tax on capital income results in

• A) a deadweight loss and lenders pay all of the tax.
• B) a deadweight loss and borrowers (firms) pay all of the tax.
• C) no deadweight loss and borrowers (firms) and lenders split the tax.
• D) no deadweight loss and lenders pay all of the tax.
• E) no deadweight loss and borrowers (firms) pay all of the tax.

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Definitions:

Liabilities

Financial obligations or debts that a company owes to others, which must be settled over time through the transfer of economic benefits.

Shareholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing ownership interest.

Expenses

Costs incurred in the process of generating revenue, typically including items like rent, salaries, and utilities.

Source Documents

Original records and documents containing the details that support or verify the transactions entered in an accounting system.