The Basic Effect of a Tax on a Service Is

question 36

Multiple Choice

The basic effect of a tax on a service is to _____ that service.

• A)decrease the supply of
• B)increase the supply of
• C)decrease the demand for
• D)increase the demand for

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Definitions:

Option Contract

A financial contract giving the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a certain date.

Exercise Price

The specified price at which an option holder can buy (in a call option) or sell (in a put option) the underlying asset.

Leveraged Firm

A company that uses a high level of debt to finance its operations.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a specific time.