Answer to Question #123298 in Finance for mhmd

Question

Common fallacies Why are these statements wrong? (a) Because cigarettes are a
necessity, tax revenues from cigarettes will always increase when the tax rate is
raised. (b) Farmers should take out insurance against bad weather that might
destroy half of all their crops. (c) Higher consumer incomes always benefit
producers.

Answer 1

a)Cigarettes are not necessary, they are not necessary goods

b)The farmer may take out insurance, but there will be no bad weather

с)Higher prices do not always bring favor. Consumers have a limited income and they will buy less than imitated goods. Also for manufacturers. It seems like an increase in prices should bring additional income, but an increase in prices can lead to a reduction in demand for these goods and, accordingly, to a decrease in the level of producer income