Question

Which of the following is true? Partial equilibrium analysis will:3)A)understate the impact of a tax for complements and overstate the impact for substitutes.B)overstate the impact of a tax for both substitutes and complements.C)understate the impact of a tax for both substitutes and complements.D)understate the impact of a tax for substitutes and overstate the impact for complements.

Answer 1

The answer of the above question is option B) overstate the impact of a tax for both substitutes and complements

Step-by-step explanation:

Partial equilibrium analysis is responsible for examining the the effects of policies related to a particular department to create equilibrium. In addition, it ignores its effects on other markets or industries, with the basic assumption that it will either have no impact or very little impact on small scale industries. Product wise, it overstates the impact of a tax for both the substitutes and complements.