If supply is perfectly elastic in a consumer goods market, a per unit tax will always be inefficient unless the market demand curve for consumers is perfectly inelastic.
Answer the following statement true (T) or false (F)
False
Rationale: The perfect elasticity of the supply curve implies the tax will be passed to consumers. But if there is no substitution effect (as in the case of perfect complements), the tax will be efficient even if the market demand curve is downward sloping because of income effects.
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Change in the price of a good causes the demand schedule for that good to shift.
Answer the following statement true (T) or false (F)
When two variables move in opposite directions, they are said to be:
A) uncorrelated. B) positively correlated. C) negatively correlated. D) directionally correlated.
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What will be an ideal response?
Differentiate between consumer's surplus and producer's surplus. For a rational consumer, consumer's surplus will never be a negative number. Why?