If the Government Wanted to Curb Consumption of Alcohol by Taxing

question 27

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:

11%

A percentage representing eleven parts out of a hundred.

Property Value

Typically refers to the monetary worth of a real estate property, established for the purpose of taxation or sales.

Compounded 12 Times Per Year

Refers to the process of applying interest to an original amount of money, with the interest being calculated and added twelve times in a year.

Compounded 365 Times Per Year

A term used in finance to indicate that interest is calculated and added to an account's balance 365 times in one year, or daily.