For a given supply curve, how does the elasticity of demand affect the burden of a tax imposed on a product?
A) The excess burden of the tax will be greater when the demand is more elastic than when it is less elastic.
B) The excess burden of the tax will be greater when the demand is less elastic than when it is more elastic.
C) The excess burden of the tax will be minimized when the demand is unit elastic.
D) The excess burden of the tax will be greater when the elasticity of supply is greater than the elasticity of demand.
Question 2
One implication of compensating differentials is that laws passed to protect the health and safety of workers may not make workers better off than they were prior to the passages of the laws. Why is this so?
A) Workers may suffer from cognitive dissonance, which means that the perception workers have that their jobs are hazardous is not true.
B) If the laws make the work environment safer, there is no reason to pay workers a compensating differential for the risk associated with their jobs.
C) In non-competitive markets, workers are unlikely to receive a compensating differential to compensate for jobs with extra risk. As a result, after the laws are passed their wages will not change.
D) The principal-agent problem that exists in the workplace may cause workers to shirk more after the work environment becomes safer.
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