If the Supply of a Product Is Perfectly Elastic and Demand

question 50

Multiple Choice

If the supply of a product is perfectly elastic and demand is downsloping, an excise tax of $2 per unit will increase price by

• A) more than $2.
• B) less than $2.
• C) $2 and increase equilibrium output.
• D) $2 and reduce equilibrium output.

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Definitions:

Average Total Cost

The total cost of production divided by the number of units produced, which includes both fixed and variable costs.

Average Total Cost

The total cost divided by the number of goods or services produced, representing the per unit cost of production.

Total Fixed Cost

Total fixed cost refers to the sum of all costs required to produce any output in which these costs do not change with the level of output.

Total Variable Cost

The total of expenses that vary directly with the volume of production or sales, such as materials and labor.