If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer's welfare it would
A. need to know the income effect but not the substitution effect of a tax hike.
B. tax until the income effect of the price increase, which would be refunded, is exactly equal to the revenue gained from the tax.
C. need to know the substitution effect but not the income effect of a tax hike.
D. raise the tax on alcohol until demand for alcohol became elastic.
Answer: B
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A) P = $10; Q = 25 thousand B) P = $35; Q = 20 thousand C) P = $20; Q = 20 thousand D) P = $5; Q = 30 thousand
Total cost refers to the market value of all resources used in producing a good or service.
Answer the following statement true (T) or false (F)
Explain the distinction between a command system and an incentive system
What will be an ideal response?
Sales taxes are generally progressive.
A. True B. False C. Uncertain