The Questions Macroeconomics / Microeconomics

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Principles of Macroeconomics / Microeconomics
Your Name:___Yurui Yao_____________________
Instructor: Jim Borer, MBA
Homework Assignment #3 due by 11:59 PM on February 7 (100 points)
Part 1: Answer the following multiple choice (MC) questions (you may highlight, bold, or enter a letter in the blank – 2 points each):
1. __D____ If the price of a sub sandwich increases by 2% and the quantity demanded falls by 5%, then there will be
a. an increase in the price elasticity of demand. b. an increase in the price elasticity of supply . c. a shift in the demand curve. d. a decrease in revenue.
2.___A___If an increase in the price of a good leads to no change in the quantity demanded, then the demand for the good is
a. perfectly
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d. both a and b.
15. ___C____ Cross-elasticity of demand
a. will be positive for substitutes like cabbage and lettuce when the price of cabbage goes up. b. will be negative for complements like SUVs and gasoline when the price of gasoline goes up c. both a and b d. none of the above.

Part 2: Answer the following questions (insert your answers directly below each question): 1. How does tax revenue generated on a product with inelastic demand compared to the tax revenue generated on a product with elastic demand? Why the difference? (page 86) (10 points)
A tax imposed on a good that has an inelastic demand will generate more tax revenue than a tax on a good with elastic demand, assuming similar supply conditions. If the good's demand is more elastic, that means its demand is more sensitive to a price increase. There, the price increase due to the tax will cause quantity purchased and tax revenue to be less than the revenue on a product with inelastic demand.

2. What is the relationship between elasticity or inelasticity of demand and who bears the most burden (customer or business) of a tax on various products/services (see pages 84 and 85). (10 points)
The more inelastic the demand relative to supply, the more tax burden the customer will bear. For gas, in the short term, customer will cut back somewhat, but they still need gas (inelastic demand), so they will bear most of the expense. If demand were elastic, they could walk

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