What is the error in the following argument? "An increased sales tax on gasoline won't reduce consumption, because while the higher price will at first reduce demand, the reduced demand will eventually bring the price back down again, and consumption
will return to its former level." A) A higher price doesn't reduce demand.
B) A reduced demand does not cause lower prices.
C) The tax-induced price increase may be greater than the price reduction due to the lower demand.
D) the tax-induced price increase will necessarily be greater than the price reduction due to the lower demand, because demand is never perfectly inelastic.
E) The ultimate effect on consumption may be to increase it beyond its original level.
A
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Other things the same, an increase in wages above their equilibrium level
a. increases frictional unemployment but leaves the natural rate of unemployment unchanged. b. increases frictional unemployment and increases the natural rate of unemployment. c. increases structural unemployment but leaves the natural rate of unemployment unchanged. d. increases structural unemployment and increases the natural rate of unemployment.
Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,
a. inflation will raise their real wage and so increase the number of available workers. b. inflation will raise their real wage and so decrease the number of available workers c. inflation will reduce their real wage and so increase the number of available workers. d. inflation will reduce their real wage and so decrease the number of available workers.