Assume that the price of soft drinks is $5 and the government decides instead to impose a $1 tax per soft drink on producers. Assume that the demand for soft drinks is perfectly elastic. Will producers pass on part of the tax to consumers in the form of higher prices? Why? Will the loss of consumer surplus be lower or higher relative to a situation where demand is point inelastic at the equilibrium that exists prior to imposition of the tax?

Assume that the price of soft drinks is $5 and the government decides instead to impose a $1 tax per soft drink on producers. Assume that the demand for soft drinks is perfectly elastic. Will producers pass on part of the tax to consumers in the form of higher prices? Why? Will the loss of consumer surplus be lower or higher relative to a situation where demand is point inelastic at the equilibrium that exists prior to imposition of the tax?

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter4: Markets In Action

Section: Chapter Questions

Problem 15SQ

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