Studies Indicate the Demand for Cigarettes Is Highly Inelastic, While

question 176

Multiple Choice

Studies indicate the demand for cigarettes is highly inelastic, while the demand for green peas tends to be elastic. Other things constant, how will this affect the incidence of an excise tax on these products?

• A) Consumers will tend to bear a greater share of the burden of an excise tax on cigarettes than of an excise tax on peas.
• B) Consumers will tend to bear a greater share of the burden of an excise tax on peas than of an excise tax on cigarettes.
• C) Producers will bear a greater share of the burden of an excise tax on cigarettes than of an excise tax on peas.
• D) Uncertain; elasticity of demand exerts no impact on how the burden of an excise tax is distributed between consumers and producers.

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Definitions:

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A type of mortgage loan in which the interest rate can change over time, based on changes in a reference interest rate or index.

Expansionary Monetary Policy

A form of economic policy that aims to increase the money supply and reduce interest rates to stimulate economic growth.

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