If the government sets a specific tax and an ad valorem tax so that they raise the same amount of tax revenue, why does the ad valorem tax reduce output less than the specific tax?
What will be an ideal response?
While the per unit amount of the specific tax stays constant, the ad valorem tax, on a per unit basis, increases with price. The demand with the ad valorem tax is more inelastic than the demand curve with the specific tax. Output is reduced less along the more inelastic curve.
Economics
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If a 10 percent price increase generates a 20 percent decrease in quantity demanded, then demand is
A) elastic. B) perfectly inelastic. C) perfectly elastic. D) inelastic. E) unit elastic.
Economics
Suppose you withdraw $1,000 from your savings account and put it in your checking account. Briefly explain how this will affect M1 and M2
What will be an ideal response?
Economics