In the country of Bora Bora, consumers buy large quantities of alcohol, tobacco, and coffee. Last year, the prices of these goods each increased by 10 percent. The quantities demanded for these goods fell by 10, 3, and 8 percent, respectively. If the government is thinking about imposing a unit tax on one of these goods, which good should they choose to tax to raise the most tax revenue, and why?
a. Alcohol; because the price elasticity is highest.
b. Tobacco; because the price elasticity is lowest.
c. Coffee; because it will have the lowest tax elasticity.
d. Tobacco; because it will have the highest tax elasticity.
e. Alcohol; because the burden of taxation would be more even.
b
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Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium
A) there will be fewer firms in the industry and total industry output decreases. B) there will be more firms in the industry and total industry output remains constant. C) there will be fewer firms in the industry but total industry output increases. D) there will be more firms in the industry and total industry output increases.
Figure 4-21
A shortage will tend to occur at which price in Figure 4-21?
a.
P1
b.
P2
c.
P3