You are Lori Lightfoot. The city needs money. You are contemplating 2 sources of revenue: levying a tax on gas in Chicago at $.50/ gal, and/or increasing the CTA fare. The 2 demand schedules are as follows. Gas price Gallons demanded (in millions) CTA fare Number of rider (one way) (in millions) $4.50 1 $2.00 6. 4.00 1.1 1.75 8 3.50 1.2 1.50 10 3.00 1.3 Answer the following questions 1. Are the 2 demand curves straight lines? Is the elasticity constant on each curve at each price? If so, what is it? If not, what is it? 2. Is one strategy better than the other (just from a money perspective)? Why? Does it depend on where the tax/fare is instituted? 3. From what you know of elasticity and the real world, is raising the price the best policy Given your answer, do all consumers share equally in the tax? Your answers should be complete enough to answer each question.
You are Lori Lightfoot. The city needs money. You are contemplating 2 sources of revenue: levying a tax on gas in Chicago at $.50/ gal, and/or increasing the CTA fare. The 2 demand schedules are as follows. Gas price Gallons demanded (in millions) CTA fare Number of rider (one way) (in millions) $4.50 1 $2.00 6. 4.00 1.1 1.75 8 3.50 1.2 1.50 10 3.00 1.3 Answer the following questions 1. Are the 2 demand curves straight lines? Is the elasticity constant on each curve at each price? If so, what is it? If not, what is it? 2. Is one strategy better than the other (just from a money perspective)? Why? Does it depend on where the tax/fare is instituted? 3. From what you know of elasticity and the real world, is raising the price the best policy Given your answer, do all consumers share equally in the tax? Your answers should be complete enough to answer each question.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:You are Lori Lightfoot. The city needs money. You are contemplating 2 sources of revenue:
levying a tax on gas in Chicago at $.50/ gal, and/or increasing the CTA fare. The 2 demand
schedules are as follows.
Gas price
Gallons demanded (in millions)
CTA fare
Number of riders
(one way) (in millions)
$4.50
1
$2.00
4.00
1.1
1.75
3.50
1.2
1.50
10
3.00
1.3
Answer the following questions
1. Are the 2 demand curves straight lines? Is the elasticity constant on each curve at each
price? If so, what is it? If not, what is it?
2. Is one strategy better than the other (just from a money perspective)? Why? Does it
depend on where the tax/fare is instituted?
3. From what you know of elasticity and the real world, is raising the price the best policy?
Given your answer, do all consumers share equally in the tax?
Your answers should be complete enough to answer each question.
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