Suppose that the government enacts a tax on Good X. In order to ...

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Suppose that the government enacts a tax on Good X. In order to estimate the effect of the tax on the quantity demanded of a related good, Good Y, we can use the concept of the:
 
  A) price elasticity of demand.
  B) income elasticity of demand.
  C) cross-price elasticity of demand.
  D) cost elasticity of demand.

Question 2

What does the Coase Theorem predict?
 
  What will be an ideal response?

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Answer to Question 1

C

Answer to Question 2

The Coase Theorem predicts that if the production or consumption of a good involves a negative externality, bargaining between the party creating the externality and the party suffering from it will result in an efficient allocation of resources irrespective of who holds the legal property rights if transaction costs are not too high.