Scenario: When the Price of Wine Is $10 Per Bottle

question 4

Multiple Choice

Scenario: When the price of wine is $10 per bottle, Thomas purchases 30 bottles of wine per month. Suppose the government levies a 50 percent tax on all alcoholic beverages . The burden of this tax is to be completely borne by the consumers. This reduces Thomas's consumption to 20 bottles of wine per month.
-Refer to the scenario above.Thomas's arc elasticity of demand for wine is ________.

• A) −0.33
• B) −0.67
• C) −0.25
• D) −1

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Definitions:

Optimal Capital

The best mix of debt, equity, and other financing sources to maximize a firm’s value while minimizing its cost of capital.

Swaps

Financial derivatives where two parties agree to exchange cash flows or other financial instruments for a set period of time.

Currency Swaps

Bilateral agreements to exchange periodic payments where the payments are based in two different currencies.

Financial Intermediary

An institution that facilitates the channeling of funds between lenders and borrowers indirectly.