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Suppose There Is Currently a $500 Tax on Automobiles That

Question 95

Multiple Choice

Suppose there is currently a $500 tax on automobiles that generates $5 million in revenue per year. If the tax increases to $800 per automobile, the revenue the tax generates will increase to $10 million. This tells us that, in this range of tax rates, the quantity effect _______ the price effect.


A) is greater than
B) is less than
C) is equal to
D) may be greater than or less than

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