If Demand Is Downward-Sloping and Supply Is Upward-Sloping, Which of the Following

question 29

Multiple Choice

If demand is downward-sloping and supply is upward-sloping, which of the following statements about the effects of an excise tax is INCORRECT?

• A) The lower the elasticity of supply relative to the elasticity of demand, the lower the burden of the tax borne by suppliers.
• B) An excise tax causes a deadweight loss because consumer and producer surpluses are reduced by more than the revenue the government collects.
• C) An excise tax drives a wedge between the price paid by consumers and the price received by producers.
• D) An excise tax is inefficient because it distorts incentives at the margin for both consumers and producers.

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Definitions:

Fees Earned

Income earned from providing services before receiving payment.

Rent Revenue

Income earned from leasing out property or space to tenants.

Year-End Closing Process

The series of steps taken by businesses at the end of an accounting year to close out books, including reconciling accounts and preparing financial statements.

End-Of-Period Spreadsheet

A tool used in accounting to gather all the balances of ledger accounts to calculate adjustments and prepare financial statements at the end of an accounting period.