An Ad Valorem Tax

question 38

Multiple Choice

An ad valorem tax:

• A) is a fixed dollar amount that must be paid on each unit bought or sold.
• B) is a tax that is stated as a percentage of the good's price.
• C) is a tax that is stated as a percentage of the good's price, which increases as quantity bought increases.
• D) is a tax that is only paid by producers.

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Definitions:

Price

The amount of money required to purchase a good or service, often determined by supply and demand dynamics in the market.

Income Elasticity

A measure of how much the demand for a good or service changes in response to changes in consumers' income.

Coefficient

A numerical or constant quantity placed before and multiplying the variable in an algebraic expression, often indicating proportionality.

Normal Good

A good for which demand increases as consumer income rises, and decreases as consumer income falls.