Question
): Consider a consumer who is willing to pay no higher than 10% above the market price for that good.The government levies a 25% tax
): Consider a consumer who is willing to pay no higher than 10% above the market price for that good.The government levies a 25% tax to suppliers who manufacture and sells that product.The suppliers wanting to maintain their producer surpluses will pass on the cost to the consumers.For that consumer in question, how would the consumer react to the new price?
(a)The consumer will maintain his/her level of consumption despite the higher price.The consumer perceives that product as perfectly price inelastic.
(b)The consumer will reduce his/her level of consumption, but still consume some amount, and will see the product as price inelastic.
(c)The consumer will completely cut his/her level of consumption.The consumer will not consume any units of that good and will see that product as perfectly price elastic.
(d)None of the above.
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