Question

If a $5 tax on each pack of cigarettes causes the market price of cigarettes to increase by $2.50 then which of the following statements is true? consumers must be more elastic than producers consumers must be less elastic than producers consumers and producers must be equally elastic Question 42 (1 point) If the elasticity of demand is -1.8 and the elasticity of supply is 1, then consumers are than producers and the relative consumer burden will equal . Hint: the relative burden is Elasticity of Supply - Elasticity of Demand) and also equals consumer burden/producer burden. more elastic; 1.8 less elastic: 1.8 more elastic; 0.56 less elastic; 0.56

Answer 1

41. If a $5 per packet tax causes the market price of cigarettes to increase by $2.50, that means Consumers pay $2.50 of the tax and producers receive $(5 - 2.50) = $2.50 of the tax. As both sides of the market equally share the tax burden it means Consumers and producers must be equally elastic.

Answer: option C

42. The elasticity of demand is -1.8 and the elasticity of supply is 1. The absolute value of the elasticity of demand is 1.8 which is greater than 1. It means Consumers are more elastic than producers.

Relative Consumers burden = 1/1.8 = 0.56

Answer: option C