Suppose That Government Imposes a Specific Excise Tax on Product

question 138

Multiple Choice

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1) . If the incidence of the tax is such that consumers pay $1.80 of the tax and the producers pay $.20, we can conclude that the

• A) supply of X is highly inelastic.
• B) supply of X is highly elastic.
• C) demand for X is highly inelastic.
• D) demand for X is highly elastic.

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