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Question
The maximum amount of tax revenue is generated when the good being taxed has a
a. somewhat elastic demand.
b. perfectly elastic demand.
c. somewhat inelastic demand.
d. perfectly inelastic demand.
e. decreasing demand over time.
Answer
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Suppose Solomon lives in a community with no price controls. What do you expect will happen if his town borders a community where there is a binding price ceiling on most products?
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