the government has imposed an indirect tax on good A and the coefficient of the price elasticity of demand is <1. Explain and demonstrate with the use of appropriate diagrams the effect of this tax on both the buyer and seller. indicate in your diagram by shading the regions in different colours the price paid by consumer and price paid by supplier.

the government has imposed an indirect tax on good A and the coefficient of the price elasticity of demand is <1. Explain and demonstrate with the use of appropriate diagrams the effect of this tax on both the buyer and seller. indicate in your diagram by shading the regions in different colours the price paid by consumer and price paid by supplier.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter6: Elasticities

Section: Chapter Questions

Problem 6P: Explain why using the midpoint formula for calculating the elasticity of demand gives the same...

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Similar questions

Explain why using the midpoint formula for calculating the elasticity of demand gives the same result whether price increases or decreases, but using the initial price and quantity instead of the average does not.
In a market where the supply curve is perfectly inelastic how does an excise tax affect the price paid by consumers and the quantity bought and sold?
(Price Elasticity and Total Revenue) Fill in the blanks for each price-quantity combination listed in the following table. Now graph this relationship, making sure to label each axis. What relationship have you depicted?
Suppose you learned that the price elasticity of demand for wheat is 0.7 between the current price for wheat and a price 2 higher per bushel. Do you think that farmers collectively would try to reduce the supply of wheat and drive the price up 2 higher per bushel? Explain your answer. Assuming that they would try to reduce supply, what problems might they have in actually doing so?
Under which circumstances does line tax burden fall entirely on consumers?
When airfares between Santa Rosa and Los Angeles averages $69, the quantity consumed is 42,500 tickets. One day, an airline tax is levied equal to $10.00 and output falls to 37,000 tickets. Assume that air travelers end up paying 75% of the tax. Calculate the price elasticity of demand and & interpret coefficient. Use the general formula, not the mid point formula Calculate the price elasticity of supply and interpret coefficient. Use the general formula, not the mid point formula. How do total sales in the airline market before and after the tax support your answer in (n) and/or (o)?
Suppose the supply and demand curves for a particular product are given by Qs=-20+2p Qd=100-2p Where Qs and Qd are quantities in units and P is the price per unit. Graph the supply and demand curves. Be sure to calculate the P and Q intercepts for demand and the P intercept for supply. Calculate and illustrate the equilibrium price and quantity. Calculate both the demand and supply elasticity around the equilibrium point. Suppose the government implements a price ceiling of $20/unit in this market. Is the price ceiling binding on the market? What are the quantities demanded and supplied at the price ceiling? How many units are exchanged at this price? Given the effects of the policy, is there a potential for illegal trade? Briefly explain your answers where necessary. What is the value of the economic surplus that would be generated in the original equilibrium? Is there a deadweight loss due to the price ceiling policy, and if so, what is its value? Briefly explain.
Country Z produces and consumes only two products: milk and bread. The price elasticity of demand ofbread is Ed = −0.1 = 0.1 and the price elasticity of demand of wheat is Ed = −2 = 2The government of country Z needs a significant amount of fund to tackle the current coronavirussituation. To obtain the fund, they have decided to impose a $ 5 tax on either the sellers of rice or thesellers of wheat. Currently, both the equilibrium prices of wheat and rice are $20 per unit respectively.The equilibrium quantities of wheat and rice are 10,000 units (per day) respectively.As the economic advisor of country Z, what would you advise the government of country Z. Whichproduct should they tax to obtain the fund to tackle the coronavirus situation? Discuss in detail using theModel of Demand and Supply (your answer should include two well labeled graphs).
Calculate, interpret and try to explain where applicable in each question, why the elasticities of demand for the following examples occur: a. The government announced an introduction of excise tax from R1 to R1.50 per bottle of beer. This increase results in an overall price increase from R9 to R10.50 per bottle to consumers. The expected tax revenue from this will be R30,000. Before the tax hike, 28,000 beers were sold. b. What will happen to the total revenue of soft drink companies if the elasticity of demand for soft drinks is higher than 1 and the price of soft drinks decreases? c. The quantity demanded of a popular magazine decreases from 10,000 copies to 6,000 per month after the publisher increased the price of a copy from R25 to R40. Total revenue from sales of a prescribed textbook on economics increased from R50,000 to R60,000 when the price of the book increased from R400 to R600 per book. Explain why.
SOLCE FOR D-E ONLYThe Demand curve for a good A is P = - 2Q+200 and the Supply curve is P=Q+10.A. Find the equilibrium Price and Quantity B. What is the level of total expenditure in this market?C. What is the price elasticity of demand at equilibrium? D. If there is a law that prevents you from consuming this good, how much should you be compensated by the government to accept it given the Consumer Surplus (CS)? Calculate.Demand shifts to P = - 2Q+260 due to an increase in the price of another good B from $20 to $25 E. Find the New Equilibrium, and Calculate the new Consumer Surplus and the Cross Price Elasticity of Demand. What type of goods are these?
The following graph shows the demand for a good. PRICE (Dollars per unit) 210 135- 105‒‒‒ 30- 0 Region Between Y and Z Between W and X Between X and Y True I I O False Z 4 I I 14 18 X QUANTITY (Units) For each of the regions listed in the following table, use the miaponke method to identify if the demand for this good is elastic, (approximately) unit elastic, or inelastic. Elastic Inelastic Unit Elastic O O O O O O 28 O O O W Demand True or False: The slope of the demand curve is not equal to the value of the price elasticity of demand. ?
The government has imposed an indirect tax on good A and the coefficient of the priceelasticity of demand is < 1. Explain and demonstrate with the use of appropriate diagrams theeffect of this tax on both the buyer and seller? [Indicate in your diagram by shading theregions in different colours the price paid by consumer and price paid by supplier