Assume That a 50 Percent Gasoline Tax Led to a Large

question 187

Multiple Choice

Assume that a 50 percent gasoline tax led to a large increase in its price and only a small decrease in the quantity of gasoline demanded.Economic analysis would lead one to conclude that

• A)gasoline should be taxed because the benefits of the tax would exceed the costs.
• B)gasoline should not be taxed because the benefits are uncertain.
• C) gasoline should not be taxed on ethical grounds since ethical benefits and costs can't be measured.
• D)the benefits of taxing gasoline is a normative issue. Economic analysis can be used to contribute to discussion of this issue but cannot decide it.

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Definitions:

Stock Dividend

A distribution of extra shares to a company's shareholders, as opposed to monetary compensation.

Retained Earnings

Profits that have been reinvested in the company rather than distributed to stockholders as dividends.

Fiscal Year

A twelve-month period chosen for accounting purposes and financial reporting, which may or may not align with the calendar year.

Treasury Stock

Shares that were issued and subsequently reacquired by the corporation, reducing the amount of outstanding stock on the open market.