Assume the Supply Curve for Cigars Is a Typical,upward-Sloping Straight

question 11

Multiple Choice

Assume the supply curve for cigars is a typical,upward-sloping straight line,and the demand curve for cigars is a typical,downward-sloping straight line.Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax.Then a tax of $0.50 per cigar is imposed.The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40.The government's tax revenue amounts to $475 per month.Which of the following statements is correct?

• A)The demand for cigars is less elastic than the supply of cigars.
• B)The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50.
• C)The deadweight loss of the tax is $12.50.
• D)All of the above are correct.

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Definitions:

Cost Standards

The benchmarks or norms established for the cost of materials, labor, and overhead that are used in measuring and controlling performance.

Actual Results

The outcomes or data obtained from real operations or experiments, not based on forecasts or estimates.

Direct Material Price Variance

The difference between the actual cost and the standard cost of raw materials used in the production process.

Purchasing Manager

A professional responsible for overseeing the acquisition of goods and services for a company, ensuring the best deals in terms of quality and price.