Please answer last item only APPLYING ELASTICITY TO THE REAL WORLDInstructions: Each of the following stories contains an assumption about the elasticity of demand. For eachstory:A. State whether the assumption made about the elasticity of demand is correct or wrong.B. Justify your answer1.Mr. Kim, a candidate for the state legislature, is proposing a large increase in the tax on cigarettes andTiquor. He says, "I'm not proposing these taxes to raise revenue, but to discourage reckless drinking andthe finky habit of smoking. If the prices of cigarettes and booze go up, most people will quit usingthem. Afte all, no one has to drink or smoke."2. KSJ, a candidate for Congress, poses freezing the price of gasne. "There is no substitute forgasoline," he says. "People have to g from one place to an er. Economists who say higher priceswill discourage people from buying as mucas as before dt live in the real world."3. Councilman Acqua Man oppos a price increase for water during a recent drought. He claimed thatthere is no substitute for wer and that therefore the demand for water is inelastic. He believes anincrease in the price of wer (with a water tax) will not cause the amount of water people to use to godown at all4. Min King, the world traveler, says if the airlines want to attract more passengers, they should lowerfares for business travelers as well as for vacationers. She believes both groups will respond equally to aprice decreasePage | 2-Week 4

Elasticity of demand describes how much a product or service's quantity desired changes in reaction…

4. Min King, the world traveler, says if the airlines want to attract more passengers, they should lower fares for business travelers as well as for vacationers. She believes both groups will respond equally to a price decrease

4. Min King, the world traveler, says if the airlines want to attract more passengers, they should lower fares for business travelers as well as for vacationers. She believes both groups will respond equally to a price decrease

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please answer last item only

APPLYING ELASTICITY TO THE REAL WORLD
Instructions: Each of the following stories contains an assumption about the elasticity of demand. For each
story:
A. State whether the assumption made about the elasticity of demand is correct or wrong.
B. Justify your answer
1.
Mr. Kim, a candidate for the state legislature, is proposing a large increase in the tax on cigarettes and
Tiquor. He says, "I'm not proposing these taxes to raise revenue, but to discourage reckless drinking and
the finky habit of smoking. If the prices of cigarettes and booze go up, most people will quit using
them. Afte all, no one has to drink or smoke."
2. KSJ, a candidate for Congress, poses freezing the price of gasne. "There is no substitute for
gasoline," he says. "People have to g from one place to an er. Economists who say higher prices
will discourage people from buying as mucas as before dt live in the real world."
3. Councilman Acqua Man oppos a price increase for water during a recent drought. He claimed that
there is no substitute for wer and that therefore the demand for water is inelastic. He believes an
increase in the price of wer (with a water tax) will not cause the amount of water people to use to go
down at all
4. Min King, the world traveler, says if the airlines want to attract more passengers, they should lower
fares for business travelers as well as for vacationers. She believes both groups will respond equally to a
price decrease
Page | 2-Week 4

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