A government is considering levying an alcohol tax to raise revenue to finance health care benefits. People for the tax argue that alcohol demand is price inelastic. Which of the following statements is true?
A. No tax revenue can be raised in this way because alcohol sellers will just lower their price by the amount of the tax, and therefore the consumer price of alcohol will not change.
B. This is a very good way to raise revenue both in the short term and in the long term because there are no close substitutes for alcohol.
C. The alcohol tax may not raise as much revenue as anticipated in the years to come because alcohol demand is more elastic the longer the period of time consumers have to adjust.
D. This tax will not raise much revenue either in the short term or the long term because demand is price inelastic.
Answer: C
You might also like to view...
Suppose the economy of Georgia can produce pecans and peanuts. Suppose the economy can either produce 10,000 pecans or 15,000 peanuts if full specialization in one good were to occur
What is the opportunity cost of increasing pecan production from 5,000 to 10,000 pecans? A) 1,000 peanuts B) 5,000 peanuts C) 7,500 peanuts D) 10,000 peanuts
Sarita can bake either a combination of 25 cakes and 15 pies or a combination of 10 cakes and 20 pies. If she now bakes 10 cakes and 20 pies, what is the opportunity cost of baking an additional 15 cakes?
A) 5 pies B) 10 pies C) 15 pies D) 20 pies
Which of the following is most subject to the lemons problem?
A) credence goods B) homogeneous goods C) search goods D) inferior goods
Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium. Which of the following will not be part of the industry adjustment process to a permanent increase in demand? a. Some firms will temporarily make economic profits
b. Some new firms will enter. c. The long run equilibrium price will be higher than the initial equilibrium price. d. All of the above will be consequences.