b. can result in price changes but does not prevent prices from simultaneously being equal to MSB and MSC.
c. results in substitution effects that change prices. d. results in both substitution effects and income effects that change prices.
2. The current price of compact discs, which are traded in perfectly competitive markets, is $ 10. A $ 1 per unit tax is levied on the discs. Annual record sales decline from five million to four million as a result of the tax. Assuming that the income effect of the tax-induced price change is negligible, the excess burden of the tax will be:
a. $ 500,000 per year. b. $ 1 million per year.