Suppose that the government imposes a $2 a cup tax on coffee. What de-termines by how much Starbucks will raise its price? How will the quantity of coffee bought in coffee shops change? Will this tax raise much revenue?
What will be an ideal response?
The price elasticities of demand and supply determine how much more Starbucks charges for a coffee. The smaller the price elasticity of demand and the larger the price elasticity of supply, the more Starbucks will raise the price of a coffee. The quantity of coffee bought will decrease. The amount of revenue the government raises depends on the size of the tax and the size of the decrease in the quantity of coffee purchased. For a given tax, the government collects more revenue the smaller the price elasticities of demand and supply because the smaller these elasticities, the smaller the decrease in the quantity purchased.
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After the financial crisis of 2008, how did some Eurozone governments finance the bailout of their financial sectors?
A) by raising taxes B) by issuing new government bonds, which were purchased by private banks, funded by ECB lending C) by printing more domestic currency to accompany infusions of euros from the ECB D) by selling foreign currency reserves and gold
A PPF can
A) shift outward but not inward. B) shift inward but not outward. C) shift inward or outward. D) shift neither inward nor outward.