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:

Loaves

Units or portions of bread, symbolizing basic food items in economic terms or transactions.

Pounds

A unit of weight, often used in the English system of measurement or as a currency in the UK.

Optimal Consumption

The allocation of resources or goods that maximizes an individual's satisfaction or utility, given their budget constraints.

Indifference Curve

A graph representing combinations of two goods that give the consumer equal satisfaction and utility, illustrating preferences.