Airline Taxes and Fees Graded Assignment l Back to Assignment Due Sunday 04.24.1

Question

Airline Taxes and Fees Graded Assignment l Back to Assignment Due Sunday 04.24.16 at 11:00 PM Attempts: Keep the Highest: 14 2. Demand elasticity and the size of deadweight loss associated with taxation The follawing graph shows the supply and demand ourves for plane tickets in the hypathetical econemy of Cappo aria n 1950 (prices given in 2010 dolars), In 1950, the government impased $100 worth of taxes on each ticket, Use the green line (triangle symbols) to shaw the new quartity demanded at each price after the tax. Then use the red triangle (cress symbols) to shade the area representing the net welfare less generated by this tax, and the purple rectangke (damond symbols) to illustrate the area representing the revenue raised by the tax. PRICE IDollars per ticket Over the years, techno ogy has impraved reducing ai travel casts and shiting the supply curve to the righ Additionally, the poel of air travellers has expanded from primariy wealthy people and business trave ers to include casses af people. The fo owing graph shaws Cappaloria's market for airline tickets in 2010. Suppase the total real cost of the tax has remained the same $100 in 2010 dallars. The demand for airline tickets has nat only shifted ta the ight, but it has alsa become relatively elastic since 195O On the graph, show the potential deadweight loss and revenues generated by the same $100 worth ftanes in 2010. (Note: You will not be graded en your placement of any of the objects an the graph.) PRICE IDollars per ticketl Supply 201 Net welfare loss

Explanation / Answer

1) Elastic

2) lower deadweight loss and higher revenue

3)elastic,lower,higher,higher

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