If the Absolute Value of the Tax Elasticity of Supply

question 110

Multiple Choice

If the absolute value of the tax elasticity of supply is 0.5,a tax increase of 10 percent will

• A)Increase output by 5 percent and decrease tax revenues.
• B)Increase output by 20 percent and decrease tax revenues.
• C)Decrease output by 5 percent and increase tax revenues.
• D)Decrease output by 5 percent and decrease tax revenues.

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Definitions:

Workers Pay

The compensation, including wages, salaries, and benefits, that an employee receives from an employer in exchange for their labor.

Excise Tax

A specific tax levied on certain goods, such as cigarettes or alcohol, usually to discourage their use or generate revenue.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount they actually pay.

Producer Surplus

The difference between what producers are willing to sell a good for and the actual price they receive, reflecting extra profit.