Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 12, Problem 6MC
To determine
Acquiring substitute good.
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A government is considering placing a tax on alcohol consumption (demand-side) with the goal of raising revenue in order to finance health care benefits such as Medicare. People who support the tax argue that the demand for alcohol is price inelastic in the short-run. Which of the following statements is true?
a.This is a very good way to raise revenue both in the short term and in the long term because there are no substitutes for alcohol.
b.No tax revenue can be raised in this way because alcohol sellers will just lower their price by the amount of the tax, and therefore the consumer price of alcohol will not change.
c.This tax will not raise much revenue either in the short term or the long term because demand is price inelastic.
d.The alcohol tax will raise a lot of revenue in the short-run, but it may not raise as much revenue in the long-run since people will substitute away from alcohol, making the long-run demand for alcohol more elastic.
A vegetable fiber is traded in the US, has the following domestic supply and demand for various price levels as shown:
Price
US Supply (Million kilograms)
US Demand (Million kilograms)
3
2
34
6
4
28
9
6
22
12
8
16
15
10
10
18
12
4
(a) What is the equation for demand? What is the equation for supply?
(b) At a price of $9, what is the price elasticity of demand? What is it at a price of $12?
(c) Do you think the product demand is elastic or inelastic at $9 and $12 respectively?
I need some help understanding the elasticity of demand and supply. I need more resources that explain the basics and then move into more difficult concepts with economics.
Thank you-
Jamie Hays
Chapter 12 Solutions
Managerial Economics: A Problem Solving Approach
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- An increase in the supply of a good will decrease the total revenue producers receive if a. the demand curve is inelastic. b. the demand curve is elastic. c. the supply curve is inelastic. d. the supply curve is elastic.arrow_forwardTypes of Income Elasticity of demand: And also write real life example 1. High 2. Unitary 3. Low 4. Zero 5. Negativearrow_forwarda)When John can sell totem poles for 1,800 each, he markets 60 annually. when the price falls to $600 each, he is willing to sell only 24 each year. What is his price elasticity of supply ? b) government pays attention to the elasticity of demand when selecting foods and services upon which to levy excise taxes. Assume a $1.00 tax is levied on some good and 10,000 units are sold. What is the tax revenue collected ?arrow_forward
- Question # 2 A rise in the price of cigarettes from $6 to $9 is found to cause demand to contract from 200,000 to 140,000 a day in a hypothetical country. a) Draw the demand curve of cigarettes. b) Calculate the price elasticity of demand of cigarettes in that country. c) Is the demand elastic or inelastic? d) Explain one reason for the degree of elasticity you have found. e) Would taxing cigarettes be more effective in reducing smoking or raising tax revenue? Explain your Answer.arrow_forwardGenerally, luxury goods have relatively elastic demand where demand for necessities (like food) is relatively inelastic. What explains why luxuries are taxed at higher rates than necessities? A.The Ramesy rule suggests luxury goods should be taxed at higher rates. B.Society values redistribution and equity. C.all of these. D.Politicians do not understand the concept of elasticity.arrow_forwardThe price elasticity of demand for a good is calculated as 1.36. From this elasticityco-efficient, we can tell that:(2)(1) The good is not a necessity;(2) The good has many close substitutes;(3) Producers can increase total revenue by decreasing the price of the good;(4) Statements 1, 2 and 3 are all correct.arrow_forward
- When Price is increased from $40 to $42, the Quantity Demanded falls from 50 units to 45 units, while the Quantity Supplied increases from 50 units to 70 units. Use this information to:(i) Calculate the Price Elasticity of Demand and the Price Elasticity of Supply.(ii) Give the name of the Price Elasticity of Demand and explain what the coefficient tells you about the product.(iii) Calculate the Total Revenue when price is $42.arrow_forwardIf the coffee company Starbucks raises the prices it charges its customers, and Starbucks says they are raising prices so they can increase their revenues, and keep up with inflation in their cost of inputs, then what can you conclude Starbucks believes about the elasticity of demand for their product. Please upload your answer to this folder. Just a quick 2-3 sentence answer is sufficient. You do not have to do any market research, just use what you have learned about elasticity in this class.arrow_forwardQuestion 2 For each of the events describe below, you are required to explain: 1. The market you are evaluating (e.g., labour market, automotive market, etc). 2. Does the event act on the demand side, supply side, or both sides of the market? 3. Does the event lead to a quantity or price change? Or does the event lead to a shift in demand, supply, or both? Make sure to explain what sort of assumptions you are making on the elasticities of demand and supply (when plotting your demand and supply, describe whether you are assuming an elastic or inelastic demand/supply). d) The implementation of a Carbon tax in the economy. A Carbon tax is charged according to the level of emissions of greenhouse gases in an economy. e) The implementation of a new loan program to university students in the education sectorarrow_forward
- a) Using the data in the table above, draw a diagram that reflects the rice market in conditions of low and high prices.b) Calculate the point elasticity value for each market price condition (high price and low price) as presented in the table above. Explain the meaning of the value.c) Do you agree with the opinion of an economist who says that the demand for goods at low prices is usually inelastic; but at high prices become more elastic? Connect with the results of your analysis in point (b) above. Describe your analysis. Describe. Please solve subparts A,B,C thank uarrow_forward1. What does it mean when we say that the demand is unitary elastic?(a) A 1% change in price leads to a 1% change in demand(b) A 1% change in price leads to more than 1% change in demand(c) A 1% change in price leads to a less than 1% change in demand(d) None of the above is truearrow_forwardGive typing answer with explanation and conclusion “This week, my place of employment, Super-Save Supermarket, lowered the price of apples from $1 to 80 cents per pound. The quantity of apples we sold last week was 200 pounds. And this week, the quantity sold was 250 pounds. I’m interested in knowing about the price elasticity of demand. In this case, can it be described as elastic, inelastic, or unitary elastic? What do you predict will happen to total revenue?”arrow_forward
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