If Lower-Income Households Spend a Greater Share of Their Income

question 108

Multiple Choice

If lower-income households spend a greater share of their income on cigarettes than do higher-income households,then a tax that raises the price of cigarettes will

• A) cause lower-income households to incur a greater loss of consumer surplus than that incurred by higher-income households.
• B) cause higher-income households to incur a greater loss of consumer surplus than that incurred by lower-income households.
• C) raise consumer surplus among higher-income households.
• D) cause consumer surplus to decline among smokers, but the relative impact cannot be determined from the given information.

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Definitions:

Present Value

The value today of the stream of expected future annual income that a property generates.

Interest Rate

Interest paid divided by amount borrowed.

Economic Rent

The excess payment to a resource above what it is necessary to pay to secure its use.

Landlords

Individuals or entities who own property that is rented or leased to others, receiving rental income in return.