Author Question: Because of product differentiation in a monopolistically competitive market, the demand curve for an ... (Read 180 times)

cookcarl · **on:** Jun 29, 2018

Because of product differentiation in a monopolistically competitive market, the demand curve for an individual firm will be

A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.

Question 2

Explain why it is that how much consumers pay for an excise tax depends on how responsive they are to a given change in market price.

What will be an ideal response?

LVPMS · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

C

Answer to Question 2

If consumers are more responsive to a given change in market price, then the less they will bear the burden of an excise tax and the more producers will bear the burden of the tax. If consumers are more responsive to a change in the market price induced by an excise tax, then the market price will increase by a smaller amount than if consumers are very responsive to the change. The tax burden is effectively the difference between the market prices before and after the imposition of the tax.