Which Statement Is TRUE of a Tax Imposed on a Product

question 29

Multiple Choice

Which statement is TRUE of a tax imposed on a product sold by a monopolist?

• A) Monopolists bear more of the tax when the tax is imposed on consumers than if the tax is levied on the monopolist.
• B) Monopolists bear more of the tax when the tax is levied on the monopolist than if the tax is levied on consumers.
• C) The tax burden of consumers is the same whether the tax is levied on the monopolist or on consumers.
• D) Consumers bear more of the tax when the tax is levied on the monopolist than if the tax is levied on consumers.

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Definitions:

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital.

Cost of Debt

The effective rate that a company pays on its current debt as part of its capital structure.

Debt-Equity Ratio

The financial ratio reflects how shareholders' equity and debt equally contribute to asset financing.

Yield-To-Maturity

An estimate of the total return expected on a bond if the bond is held until the date it matures.