Assuming the basic purpose is to raise additional revenue, should government levy an excise tax on cigarettes whose demand is highly inelastic or on a product whose demand is highly elastic? Are there any other reasons to levy such a tax?

What will be an ideal response?


The government should levy the tax on a good with inelastic demand if its purpose is to raise revenue. If the tax raised the price of the good by 10% and demand is inelastic, consumption would drop by less than 10%. Thus total revenue and tax collections would rise. If demand were elastic, consumption would drop by more than 10% in this situation, and total revenue would fall. The tax portion of a smaller revenue would therefore be less than if demand were inelastic.
Government may use the tax to modify behavior. Taxes on cigarettes and alcoholic beverages are so-called “sin taxes.” This means that, in part, the government is trying to discourage their use by increasing the price with an excise tax.

Economics

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The self-correcting tendency of the economy means that rising inflation eventually eliminates:

A. unemployment. B. exogenous spending. C. recessionary gaps. D. expansionary gaps.

Economics

An economic theory is tested by: a. assessing the realism of its assumptions

b. polling economists to see if there is consensus as to the validity of the hypothesis. c. comparing and contrasting its simplicity with related theories. d. comparing its predictions with real-world data.

Economics

Kara and Kyle are competing sockeye salmon fishers. Both have been allocated ITQs that limit their catch to 2,000 tons of sockeye salmon each. Kara's cost per ton is $8; Kyle's cost per ton is $12. Refer to the information given and assume that

the market price of sockeye salmon is $15 per ton. If Kara pays Kyle $5 per ton for his ITQs, and if she then catches her new limit of 4,000 tons, their combined profit would be: A. $18,000. B. $22,000. C. $20,000. D. $4,000.

Economics

Which of the following is a microeconomic question?

A. Should the government decrease unemployment benefits to reduce the unemployment rate? B. Why do some countries have higher inflation rates than other countries? C. Should the government subsidize corn farmers to encourage the production of ethanol? D. Should congress decrease taxes to help stimulate the economy?

Economics