The sale of all alcoholic beverages is taxed in Budopia. If the demand for alcohol in Budopia is perfectly inelastic, how much of the tax burden will be borne by the consumers and why?
What will be an ideal response?
In the absence of the tax, the equilibrium quantity and price of the beverages are determined by the interaction of the market forces of demand and supply. However, when the tax is imposed, the supply curve of these beverages shifts to the left as sellers now have to pay a tax to the government for each unit sold. In this case, demand is perfectly inelastic. Perfectly inelastic demand means that consumers are willing to pay any price to get the product. Therefore, the seller can raise the price to recoup the extra cost without losing any sales, so he or she would pass along the entire tax to the consumers.
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According to the above table, at a price of $8 per unit, other things constant
A) consumers will continue to bid prices upward. B) there will be no tendency for the market to approach an equilibrium. C) a surplus of 100 units will exist. D) a shortage of 80 units will exist.
The cartel is on the opposite end of the competitive spectrum from the _______________.
Fill in the blank(s) with the appropriate word(s).
Transfer payments are payments to individuals for which nothing is currently rendered in return.
Answer the following statement true (T) or false (F)
Most economists would agree that, unless it incorporates rational expectations or something like it, a model cannot account for
A) the Great Depression. B) shifts in aggregate supply. C) the relationship between consumption and income. D) the stagflation of the 1970s. E) the different initial impact of a permanent versus a temporary policy change.