In Figure 6 : (a) How much is the tax? (b) How much of this tax is borne by the

Question

In Figure 6: (a) How much is the tax? (b) How much of this tax is borne by the buyer and how much is borne by the seller?

If the price of laser eye surgery falls by 50 percent and the quantity of contact lenses demanded falls by 25 percent, find the cross elasticity of demand for these two goods.

If your income rises by 20 percent and you decide to increase your purchases of clothing by 10 percent, find your income elasticity for clothing.

If the elasticity of demand is 5, and the price of a cup of coffee is $2, how much would the seller need to reduce her price in order to increase the quantity sold by 50 percent?

Explanation / Answer

2a. $1.50 b. 2b. $0.50 by buyer, $1.00 by seller. 3. Cross price elasticity: -0.25/-0.50 = +0.50 4. Income elasticity: +0.10/+0.20 = 0.50 5. 10%.

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