Assume the Supply Curve for Product X Is Perfectly Elastic

question 36

Multiple Choice

Assume the supply curve for product X is perfectly elastic and that government imposes a $2-per-unit excise tax. We can conclude that the resulting

• A) increase in output will be greater the less elastic the demand curve.
• B) decrease in output will be greater the less elastic the demand curve.
• C) decrease in output will be greater the more elastic the demand curve.
• D) increase in output will be greater the more elastic the demand curve.

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Definitions:

Price

The amount of money required to purchase a good or service, often determined by supply and demand dynamics in the market.

Income Elasticity

A measure of how much the demand for a good or service changes in response to changes in consumers' income.

Coefficient

A numerical or constant quantity placed before and multiplying the variable in an algebraic expression, often indicating proportionality.

Normal Good

A good for which demand increases as consumer income rises, and decreases as consumer income falls.