A new per unit tax on yacht production decreases the supply of yachts. If yachts are elastically demanded, what will happen to total revenues from yacht production?
A) They will rise.
B) They will fall.
C) They will remain the same.
D) They will change in an indeterminate direction.

Question

Quizplus · Accepted Answer

If yachts are elastically demanded, a decrease in supply will result in a significant increase in price. As a result, total revenues from yacht production will decrease because the increase in price will not offset the decrease in quantity demanded by consumers. Therefore, option B is the correct answer.

A New Per Unit Tax on Yacht Production Decreases the Supply