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

question 79

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.(P = $15,Q = 100) .The city government imposes a tax of $3 per car parked per day.Market equilibrium adjusts to P = $18 and Q = 100.Which of the following statements about the burden of the tax is correct?

• A)Price elasticity of supply is 0 and therefore the entire burden of the tax falls on the consumer.
• B)Elasticity of demand is 0 and therefore the entire burden of the tax falls on the consumer.
• C)Elasticity of supply is 1 and therefore the entire burden of the tax falls on the seller.
• D)Price elasticity of demand is 1 and therefore the entire burden of the tax falls on the seller
• E)The burden of the tax is shared equally by the seller and the consumer.

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