Type your question here The following present select elasticity of demand elasti

Question

Type your question here

The following present select elasticity of demand elasticity of demand estimates: Barnes & Noble books = - 4.00, Coca-Cola = - 1.22, Cigarettes = -0.25, Beer = -0.23, Gasoline = -0.06. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Using the elasticity estimates in the table above, classify the price elasticity demand as elastic or inelastic. Explain your reasoning.

Explain the implications of those classifications on tax revenue collections when the per-unit tax increases as opposed to decreases.

Using those classifications, make some assumptions regarding tax incidence. For instance, will buyers or sellers pay a larger portion of the tax per unit? Explain.

Conclude, based on the elasticity classifications, their effect on tax revenue and tax incidence, and which goods the government would prefer to tax.

Explanation / Answer

1.Barnes & Noble books -4.00 = Elastic
Coca-Cola -1.22 = Elastic
Cigarettes -0.25 = Inelastic
Beer -0.23 = Inelastic
Gasoline -0.06 = Inelastic

2. Tax revenue collections will be in the following order:
Gasoline > Beer > Cigarettes > Coca cola > Books
The more the elasticity, the less the revenue collected.

3.Similarly, the burden on buyers (tax borne by them) is more for goods that have inelastic demand. So the same sequence as in Q.2

4.The govt. would tax goods with inelastic demand as people will consume for them despite the change in price.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.