ch 5 - C HAPTER 5 1

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CHAPTER 5 In 1991 Congress imposed a 10 percent luxury tax paid by producers of luxury boats. Because of the uproar from consumers, the tax was repealed in 1993. What was the  effect of the two events on equilibrium price and quantity of luxury boats? A) Price rose and then fell; quantity sold also rose and then fell. B) Price rose and then fell; quantity sold fell and then rose. C) Price fell and then rose; quantity sold rose and then fell. D) Price fell and then rose; quantity sold also fell and then rose. Feedback: The tax on producers shifts the supply of luxury boats to the left. The price of luxury boats rises, quantity sold declines. Upon repeal of the tax, the supply curve  shifts back to its original position and the price of luxury boats falls and quantity sold rises. An increase in price and quantity is consistent with a: A) rightward shift in demand and no shift in supply. B) leftward shift in supply and no shift in demand. C) leftward shift in supply and a leftward shift in demand. D) rightward shift in supply and a rightward shift in demand. Feedback: Only a rightward shift in demand and no shift in supply will result in both an increase in price and quantity with certainty. A rightward shift in supply and demand 
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This note was uploaded on 09/11/2011 for the course TERM 1 taught by Professor Smith during the Spring '11 term at FIT.

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ch 5 - C HAPTER 5 1

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