A decrease in price will lead to an increase in demand.

Suppose the local government places a sales tax on hotel rooms and that the demand for these rooms is elastic while the supply is perfectly inelastic. The tax incidence is such that the tax will be paid by

A) only the consumers. B) equally by the consumers and the producers. C) only the producers. D) the taxpayers.

Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?

What will be an ideal response?