a few years ago, the city of seattle, washington, considered imposing a specific tax on all espresso based coffee drinks sold in the city. The extra tax revenue generated would have been used to fund after school programs for low - income children. The coffee-house owners (firms) agreed that this would be a good program to fund, but they argued that the tax would sharply reduce their sales volume and they would pay most of the tax burden. This claim is true if:A) the demand for espresso-based coffee is more inelastic than supply. B) the demand for espresso-based coffee is more elastic than supply. C) there are no close substitutes for espresso-based coffee drinks. D) espresso-based coffee drinks can be produced at constant marginal cost.

Question

Business

Shayla

29 June, 13:12

a few years ago, the city of seattle, washington, considered imposing a specific tax on all espresso based coffee drinks sold in the city. The extra tax revenue generated would have been used to fund after school programs for low - income children. The coffee-house owners (firms) agreed that this would be a good program to fund, but they argued that the tax would sharply reduce their sales volume and they would pay most of the tax burden. This claim is true if:A) the demand for espresso-based coffee is more inelastic than supply. B) the demand for espresso-based coffee is more elastic than supply. C) there are no close substitutes for espresso-based coffee drinks. D) espresso-based coffee drinks can be produced at constant marginal cost.

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Answers (1)

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Carter Foster · Answer 1

The correct answer here is option b.

Explanation:

Imposition of tax on espresso based drinks would increase the price of those drinks. With the increase in price level will cause demand to fall. The decline in demand would lead to lower sales for the firms.

The firms argue that they will have to bear the tax burden, as their sales volume will decline sharply.

This happens because the demand for drinks is more elastic than its supply.