If the Government Is Most Interested in Minimising Excess Burden

question 8

Essay

If the government is most interested in minimising excess burden of an excise tax, should it impose the tax on goods that are elastic or on goods that are inelastic?

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Definitions:

Interaction Effect

A phenomenon in statistical analysis where the effect of two or more variables on an outcome is not simply additive, indicating that variables interact in predicting the response.

Degrees of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution or to a system without violating any constraints.

F Statistic

A ratio of variance estimates used in statistical analysis to test the significance of multiple group means.

Main Effect

Refers to the direct impact of an independent variable on a dependent variable in a statistical model.