Question

In an election debate, two candidates for governor are debating about whether to raise the general sales tax from 5 to 7 percent. candidate a argues that this would increase tax revenues, enabling the state to maintain essential services. candidate b argues that the tax would hurt retailers and consumers, slowing down the economy so much that it would decrease tax revenues too. what assumptions must the candidates be making in order to justify their position?
a. Candidate A assumes that the price effect would be larger than the quantity effect. b. Candidate B assumes that the price effect would be larger than the quantity effect. c. Candidate A assumes that the quantity effect would be larger than the price effect. d. Candidate B assumes that the quantity effect would be exactly the same as the price effect.

Answer 1

A. Candidate A assumes that the price effect would be larger than the quantity effect. and B. Candidate B assumes that the price effect would be larger than the quantity effect.

What is price effect?

Price effect refers to the changes in demand resulting from changes in price. When the price of a good or service increases, demand typically decreases, while a decrease in price usually increases demand. This phenomenon is studied in economics and is a major factor in pricing decisions. Many companies will use price effects to their advantage, such as setting a higher initial price to create a “premium” product or using discounts to generate more sales. Factors such as availability, consumer preferences, and competition can also influence price effects. Ultimately, businesses must consider price effect when making pricing decisions in order to maximize their profits.

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