Question

ment#4 Question 9 (of 10y 10.00 points A province facing a budget shortall decides to tax soft drinks. You are a budget analyst for the province. You would expect to collect more tax revenue in the O second year because elasticity is smaller over a longer time frame O trst year because people will stock up on soda O first year because elasticity is larger over a longer time frame O second year because people will adjust and begin to consume more drinks in the second year References eBook & Resources Multiple Choice Learming Oibjective: 06-05 Explain how elasscity and time period Iniuence the impact of a market intervention MacBook Air 2 3 4 5

Answer 1

You would expect to collect more tax revenues in the first year because elasticity is larger over a longer time frame.
In the short run( 1st year ),elasticity will be low and people will not respond much to an increase in price of soft drink and hence tax revenues will be high.
But as we know elasticity is high in the long run,so people will reduce their demand significantly from the 2nd year(they may prefer to consume its substitute) and hence tax revenue will fall 2nd year onwards.