There Have Been Proposals That a Tax Be Imposed on Sugar-Laden

question 27

Multiple Choice

There have been proposals that a tax be imposed on sugar-laden soft drinks in an attempt to reduce their consumption.Assume for simplicity that all bottled soft drinks are the same size.Suppose the initial market equilibrium is P = $2.00 and Q = 1000. FIGURE 4-4
-Refer to Figure 4-4.Suppose the government imposes a tax of $0.60 per soft drink purchased.Given the change in total expenditure on soft drinks after imposition of the excise tax,what do we know about the price elasticity of demand (η) for soft drinks?

• A)η is equal to 1
• B)η is equal to 0
• C)η is greater than 1
• D)η is less than 1
• E)There is not enough information to determine.

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