If the Government Wanted to Curb Consumption of Alcohol by Taxing

question 32

Multiple Choice

If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer's welfare it would

• A)Raise the tax on alcohol until demand for alcohol became elastic
• B)Need to know the substitution effect but not the income effect of a tax hike
• C)Need to know the income effect but not the substitution effect of a tax hike
• D)Tax until the income effect of the price increase, which would be refunded, is exactly equal to the revenue gained from the tax

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Definitions:

Preferred Dividends

Payments made to preferred shareholders before common shareholders receive any dividends.

After-Tax Income

The net income an individual or corporation receives after all income taxes have been deducted from gross income.

Common Shareholders

Individuals or entities that own common shares in a corporation, granting them voting rights and a share in the company’s profits via dividends.

EPS

Earnings Per Share; a company's profit divided by the outstanding shares of its common stock.