The government puts a $2.00 tax on each $8.00 video tape sold. As a result, the price of a video tape rises from $8.00 to $8.50.
What can be concluded from this?
1 )
The demand for video tapes is price inelastic.
2 )
The government will receive only 25% of its expected tax revenue.
The incidence of the tax will fall mainly on the producer.
4 )
The tax is progressive.
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