The supply of wigits is pefectly elastic and the demand for wigits has a price elasticity of 2 and an income elasticity of 1 (a) If income increases by 25 percent then the equilibrium quantity will_____(increase, decrease, not change) by_____percent and the equilibrium price will ____ (increase, decrease, not change) (b) If a 25 percent tax is imposed on wigits then the quantity consumed will_____(increase, decrease, not change) by____percent and the equilibrium price, inclusive of the tax, will increase by____ percent.
The supply of wigits is pefectly elastic and the demand for wigits has a price elasticity of 2 and an income elasticity of 1 (a) If income increases by 25 percent then the equilibrium quantity will_____(increase, decrease, not change) by_____percent and the equilibrium price will ____ (increase, decrease, not change) (b) If a 25 percent tax is imposed on wigits then the quantity consumed will_____(increase, decrease, not change) by____percent and the equilibrium price, inclusive of the tax, will increase by____ percent.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
The supply of wigits is pefectly elastic and the demand for wigits has a price elasticity of 2 and an income elasticity of 1
(a) If income increases by 25 percent then the equilibrium quantity will_____(increase, decrease, not change) by_____percent and the equilibrium price will ____
(increase, decrease, not change)
(b) If a 25 percent tax is imposed on wigits then the quantity consumed will_____(increase, decrease, not change) by____percent and the equilibrium price, inclusive of the tax, will increase by____ percent.
Expert Solution
Introduction
Here we are given the the market of wights.
Given that the supply is perfectly elastic, hence at a given price every unit demanded would be supplied at the same price. Whereas the elasticity of demand is 2 and income elasticity of demand is 1
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