Suppose the state of Massachusetts passes a law that increases the tax on alcoholic beverages.As a result,residents in Massachusetts start purchasing their alcohol in surrounding states.Which of the following principles does this best illustrate?
A) People respond to incentives
B) Rational people think at the margin
C) Trade can make everyone better off
D) Markets are usually a good way to organize economic activity

Question

Quizplus · Accepted Answer

This scenario illustrates the principle that people respond to incentives. The increase in taxes on alcohol in Massachusetts creates an incentive for residents to purchase their alcohol in other states where the tax is lower, which in turn affects the demand for alcohol in Massachusetts.

Suppose the State of Massachusetts Passes a Law That Increases