Question
Suppose the government imposes an excise tax specifically on “Red Bull” energy drinks, while deciding not to tax Red Bull’s competitors.
Will Red Bull bear the majority of the burden from the excise tax, or will Red Bull’s consumers bear a majority of the burden from the excise tax?
Will Red Bull bear the majority of the burden from the excise tax, or will Red Bull’s consumers bear a majority of the burden from the excise tax?
A Red Bull will bear the majority of the excise tax due to the fact consumers have many substitutes in the energy drink market. Therefore, the price elasticity of demand is greater than the price elasticity of supply.
B Red Bull will bear the majority of the excise tax due to the fact consumers have many substitutes in the energy drink market. Therefore, the price elasticity of demand is less than the price elasticity of supply.
C Red Bull’s consumers will bear the majority of the excise tax due to the fact consumers do not have many substitutes in the energy drink market. Therefore, the price elasticity of demand is less than the price elasticity of supply.
D None of the available answers.
This question is taken from Econ 101 – Microeconomics » Fall 2019 » iVat Chapter 7
