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:

Laissez-Faire Economy

An economic system where transactions between private parties are free from government intervention such as regulation, privileges, tariffs, and subsidies.

Self-Interest

A principle that assumes individuals make decisions that they perceive to be in their own best advantage, often equated with rational behavior.

Investment

The allocation of resources, such as capital or time, in expectation of future returns, typically in the form of profit, interest, or appreciation in value.

Stocks and Bonds

Financial instruments representing ownership in a company (stocks) and debt obligations issued by entities (bonds), respectively, used for investment purposes.