'Assume That the Demand for Entertainment Is More Elastic Than

question 14

Multiple Choice

'Assume that the demand for entertainment is more elastic than the demand for petrol'.According to this statement, a tax levied on petrol will cause the loss of consumer surplus to be:

• A)zero (because raising the price of gasoline has no effect on the amount purchased)
• B)relatively large
• C)relatively small
• D)either small or large (depending on the elasticity of supply)

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Definitions:

Pareto Efficient

An allocation of resources from which it is impossible to reallocate to make any one individual better off without making at least one individual worse off.

Trade

The exchange of goods, services, or both between two or more parties, either within the same country or internationally.

Textbook

A book containing comprehensive coverage of a subject, often used for academic study and instruction.

Marginal Utility

The supplementary satisfaction or value derived from the consumption of one more unit of a good or service.