Suppose that the government imposes a $2 a cup tax on coffee. What de-termines by how much Starbucks will raise its price? How will the quantity of coffee bought in coffee shops change? Will this tax raise much revenue?
What will be an ideal response?
The price elasticities of demand and supply determine how much more Starbucks charges for a coffee. The smaller the price elasticity of demand and the larger the price elasticity of supply, the more Starbucks will raise the price of a coffee. The quantity of coffee bought will decrease. The amount of revenue the government raises depends on the size of the tax and the size of the decrease in the quantity of coffee purchased. For a given tax, the government collects more revenue the smaller the price elasticities of demand and supply because the smaller these elasticities, the smaller the decrease in the quantity purchased.
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As an economic expansion approaches its peak, it is very likely that real GDP will
A) exceed nominal GDP. B) exceed potential GDP. C) equal nominal GDP but not potential GDP. D) be less than potential GDP. E) equal nominal GDP and equal potential GDP.
The Wilfer Resort Hotel has a spectacular view of a pine forest along a river bank. Suppose a commercial logger has purchased the pine forest and is planning to clear-cut the forest in a way that has a negative impact on the resort
Can the two parties arrive at a Coasian solution and if so what might that solution be?
International trade occurs because the ________ cost of producing specific goods differs across countries
a. variable b. fixed c. sunk d. opportunity
All profit-maximizing firms chose the level of output at which:
A. MR < P B. P = MC C. MR = P D. MR = MC