Consider an Excise Tax Imposed on Daily Parking Charges in the Downtown

question 74

Multiple Choice

Consider an excise tax imposed on daily parking charges in the downtown of a small city.Before the imposition of the tax,equilibrium price and quantity are $15 and 100 cars parked per day.(P = $15,Q = 100) .The city government then imposes a tax of $3 per car parked per day.Market equilibrium adjusts to P = $16 and Q = 95.Which of the following statements about the burden of the tax is correct?

• A)Supply is less elastic relative to demand and therefore more of the burden falls on the consumer.
• B)Supply is more elastic relative to demand and therefore more of the burden falls on the seller.
• C)Supply is more elastic relative to demand and therefore more of the burden falls on the consumer.
• D)Supply is less elastic relative to demand and therefore more of the burden falls on the seller.

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Definitions:

Transactions

The action of buying or selling in a business context, or the records of these actions.

Business Operations

The activities that businesses engage in on a day-to-day basis to increase the value of the enterprise and earn a profit.

EOQ

Economic Order Quantity, a formula used to determine the optimal quantity of inventory to order that minimizes total inventory costs.

Fixed Ordering Costs

Fixed ordering costs are consistent expenses incurred in the process of ordering inventory or supplies, regardless of the order size.