When a Tax Is Imposed on a Good for Which

question 89

Multiple Choice

When a tax is imposed on a good for which demand is elastic and supply is elastic,

• A)sellers effectively pay the majority of the tax.
• B)buyers effectively pay the majority of the tax.
• C)the tax burden is equally divided between buyers and sellers.
• D)None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

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Definitions:

Risk-free Rate

A theoretical return on an investment with zero risk, typically represented by treasury bills or government bonds.

Risk Premium

The extra return above the risk-free rate that investors demand to compensate for the additional risk of holding a risky asset.

Risk-free Investment

An investment with a guaranteed return and no chance of default, typically associated with government bonds or similar financial instruments.

Risky Investment

An investment with a high degree of risk where there is the potential for significant loss but also significant gain.