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:

Weak Form Efficiency

A form of market efficiency where all past trading information is already reflected in stock prices, implying that technical analysis cannot yield consistent excess returns.

Market Efficiency

A concept that describes the extent to which market prices fully reflect all available information, making it impossible to consistently achieve higher-than-normal returns.

Well-Organized Markets

Financial markets that are structured in a manner to ensure transparency, fair trading practices, and efficiency.

Semi-Strong Efficiency

A form of market efficiency where asset prices fully reflect all publicly available information.