If a $1 Sales Tax Is Imposed on the Sale

question 268

Multiple Choice

If a $1 sales tax is imposed on the sale of a CD,and neither the demand nor the supply is perfectly elastic or perfectly inelastic,then the price of a CD paid by consumers will

• A) increase by $1 and fewer CDs will be bought.
• B) increase by less than $1 and fewer CDs will be bought.
• C) not change and the same number of CDs will be bought.
• D) increase by $1 and the same number of CDs will be bought.
• E) increase by more than $1 and fewer CDs will be bought.

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Definitions:

Real GDP

The measure of a country's economic output adjusted for price changes, such as inflation or deflation, giving a more accurate depiction of an economy's size.

GDP

The total value of goods and services produced over a specific period in a country, known as Gross Domestic Product, reflects its economic productivity.

GDP Deflator

An index that measures the level of prices of all new, domestically produced, final goods and services in an economy.

Wages

Payments made to employees based on the hours worked or the output produced; it is the price of labor.