Multiple Choice
Which of the following most likely caused the steady increase in the price per barrel of oil between 2001 and 2008?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
How have high taxes on tobacco products impacted the number of people who use them?
A
High taxes have only affected the price, not the number of users.
B
High taxes have increased the number of people who use tobacco products.
C
High taxes have generally decreased the number of people who use tobacco products.
D
High taxes have had no significant effect on the number of tobacco users.
Verified step by step guidance1
Step 1: Understand the concept of price elasticity of demand, which measures how the quantity demanded of a good responds to a change in its price. For tobacco products, this elasticity helps us analyze how users react to price changes caused by taxes.
Step 2: Recognize that high taxes on tobacco products increase their price, making them more expensive for consumers. This price increase is expected to influence consumer behavior.
Step 3: Apply the law of demand, which states that, all else equal, an increase in price leads to a decrease in quantity demanded. Therefore, higher taxes (and thus higher prices) should reduce the number of tobacco users.
Step 4: Consider empirical evidence from microeconomic studies showing that tobacco demand is somewhat price inelastic but still responsive; meaning, while some users may reduce consumption or quit, others may be less sensitive, but overall usage tends to decline.
Step 5: Conclude that high taxes on tobacco products generally decrease the number of people who use them, as the increased cost discourages consumption and can lead to quitting or reduced initiation among potential new users.
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