Suppose That Policymakers Are Considering Placing a Tax on Either

question 1

Multiple Choice

Suppose that policymakers are considering placing a tax on either of two markets.In Market A,the tax will have a significant effect on the price consumers pay,but it will not affect equilibrium quantity very much.In Market B,the same tax will have only a small effect on the price consumers pay,but it will have a large effect on the equilibrium quantity.In which market will the tax have a larger deadweight loss

• A)market A because the demand of the market is relatively inelastic
• B)market B because the demand of the market is relatively elastic
• C)market A because the demand of the market is relatively elastic
• D)market B because the demand of the market is relatively inelastic

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Definitions:

Intrinsic Value

The actual, fundamental worth of an asset or investment, determined through financial analysis independent of current market value.

Time Value

The concept that money available now is worth more than an identical sum in the future due to its potential earning capacity.

Strike Price

The predetermined price at which the holder of an option can buy (call) or sell (put) the underlying asset.

Market Price

The current price at which an asset or service can be bought or sold.