Asked by Dennis Davis on Sep 24, 2024
Verified
If the government wants to decrease the quantity consumed of cigarettes 20%,what percentage of tax would they have to levy on cigarette consumption?
A) 20%
B) 30%
C) 40%
D) 50%
Cigarettes
Narrow cylinders containing psychoactive material, typically tobacco, that are rolled into thin paper for smoking.
Levy
A tax imposed by a government on goods, services, or financial transactions.
Consumption
The use of goods and services by households, which represents the final phase in the economic chain of activities.
- Recognize the effects of government taxation on product consumption.
Verified Answer
NK
nazira kassam5 days ago
Final Answer :
C
Explanation :
According to the table provided, the price elasticity of demand for cigarettes is -0.5, indicating that for every 1% increase in the price of cigarettes, the quantity consumed will decrease by 0.5%. To achieve a 20% decrease in quantity consumed, the government must increase the price by 40% (20%/0.5%). Therefore, the percentage of tax that they would have to levy on cigarette consumption is 40%.
Learning Objectives
- Recognize the effects of government taxation on product consumption.