Question

Suppose that the government imposes a​ $2 a cup tax on coffee. The rise in the price of a Starbucks coffee will be​ ______, coffee. The number of cups of coffee bought in coffee shops will​ _______.

Answer 1

Answer:

increase, decrease

Explanation:

In simple words, when the tax was imposed on the product the company will ultimately bear it to the final consumer which means the price will rise. However when the price of the product rises the demand for that product decreases due to the fact that many individuals would not be able to buy it now from their limited income, this phenomenon is called price elasticity due to income.