Chapter 9R, Problem 7MCQ

To determine

The type of tax if the government levies a tax on the sale of cigarettes which considers a specific good.

Answer to Problem 7MCQ

From the available options, the correct option is an excise tax.

Explanation of Solution

A tax that is levied on the manufacturing, purchasing, and selling of a specific good is considered an excise tax. As the tax is levied on the sale of a specific good, therefore, it is an excise tax. Whereas, progressive tax refers to an increase in tax rate due to an increase in taxable income such as a tax on interest earned or earnings from rent and regressive tax refers to a decrease in tax rate with the increase in taxable subjects which include consumer goods. All taxpayers bear the same tax burden in the case of the proportional tax such as taxpayers paying the same sales tax. And, a lump-sum tax involves a tax on personal property or business equipment therefore, all options: b, c, d, and options e are incorrect.

Here the correct option is (excise tax).

Economics Concept Introduction

Introduction:

Specific goods are goods for which the seller and buyer both are agreed to make a contract of sale.