Suppose that the market for large, 64-ounce soft drinks in the town of Pudgyville is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. The market is initially in equilibrium with 1,000 soft drinks sold per day. The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks. She is considering either a $0.10 tax or a
$0.30 tax. Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500 . Which tax is better?
a. The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax.
b. The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax.
c. It is not clear which tax is better because although the $0.30 tax raises more tax revenues, it creates a larger deadweight loss than the $0.10 tax.
d. It is not clear which tax is better because although the $0.10 tax raises more tax revenues, it creates a larger deadweight loss than the $0.30 tax.
c
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In the figure above, which of the following represents a real flow?
A) Expenditures on real estate services B) Profit C) Capital D) Wages E) Both B and D
If you mow the lawn yourself, the lawn mowing is considered household production. If you pay Larry's Lawn Service to mow your lawn, the lawn mowing is considered
A) a leisure time activity. B) a service, that will be counted as part of GDP. C) a service, but is not counted as part of GDP because it simply replaces a service you used to perform. D) rent, and therefore is counted as part of GDP. E) underground production because it replaces the underground production of you mowing your lawn.