Suppose There Is an Increase in the Excise Tax Imposed

question 260

Multiple Choice

Suppose there is an increase in the excise tax imposed on cigarettes, a good for which the demand is relatively inelastic. The short-run burden of the tax increase will be borne primarily by

• A) consumers, because the increase in market price will be large relative to the increase in the excise tax.
• B) firms, because the increase in market price will be large relative to the increase in the excise tax.
• C) consumers, because the increase in market price will be small relative to the increase in the excise tax.
• D) firms, because the increase in market price will be small relative to the increase in the excise tax.

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Definitions:

Colon Cancer

A type of cancer that arises in the colon, the longest part of the large intestine, and can lead to significant health issues and requires medical intervention.

Gross Earnings

The total amount of money earned by an individual or business before any deductions or taxes are applied.

Payroll Process

The administrative operation involving the calculation of employees' salaries, withholdings, and deductions, as well as the distribution of their paychecks or electronic payments.

Deductions

Expenses or amounts removed from taxable income, effectively reducing the overall tax liability.