The demand for cigarettes is price inelastic, but not perfectly inelastic. The s
ID: 1190485 • Letter: T
Question
The demand for cigarettes is price inelastic, but not perfectly inelastic. The supply of cigarettes is elastic, but not perfectly elastic. If there were no price controls or other complicating regulations, what would a model of supply and demand therefore predict if a high cigarette tax were removed?
The price consumers pay would fall by the full amount of the tax.
The price consumers pay would fall by most of the amount of the tax.
The price consumers pay would be unchanged.
The price consumers pay would fall by less than half of the tax amount.
The price consumers pay would fall by the full amount of the tax.
The price consumers pay would fall by most of the amount of the tax.
The price consumers pay would be unchanged.
The price consumers pay would fall by less than half of the tax amount.
Explanation / Answer
In case of taxes, the inelastic side ends up bearing most of the burden of price incidence.
In case of removal of tax, the demand would increase, but to a lesser extent and not back to the original market equilibrium.
Correct option: The price consumers pay would fall by less than half of the tax amount
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.