Suppose that the market for large, 64-ounce soft drinks in the town of Pudgyville is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. The market is initially in equilibrium with 1,000 soft drinks sold per day. The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks. She is considering either a $0.10 tax or a
$0.30 tax. Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500 . Which tax is better?
a. The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax.
b. The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax.
c. It is not clear which tax is better because although the $0.30 tax raises more tax revenues, it creates a larger deadweight loss than the $0.10 tax.
d. It is not clear which tax is better because although the $0.10 tax raises more tax revenues, it creates a larger deadweight loss than the $0.30 tax.
c
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We call costs that fall directly on an economic decision maker:
A. social costs. B. private costs. C. external costs. D. network costs.
What are two arguments against using the economic method?
a. It is not a fair and diverse approach. b. It is not possible to prove that people behave rationally. c. People do not and should not take only economic factors into their decision making. d. It is too complicated and theoretical.
A customs union is a(n)
a. tax on an imported good b. union of similarly skilled workers c. group of countries that agree on common trade policies d. union of countries with similar customs e. agreement that affects intra-country trade
A demand curve shows the relationship between:
A. price and quantity demanded. B. the demand and supply schedules. C. demand and supply equilibrium. D. leakages and injections.