Microeconomics
Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 6, Problem 14QP
To determine

The impact of decrease in the price elasticity of demand on the tax paid by the buyers.

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Suppose an economist estimates the price elasticity of demand for instant noodle is -2.4, while its price elasticity of supply is 4.0. If the government decides to impost a per-unit sales tax of $16 per pack of instant noodle, how would the market price for instant noodle be affected? Show your calculation.
How does a sugar tax that increases the final price of non-alcoholic beverages with sugar address the problem? Using the concept of price elasticity of demand, is a tax on non-alcoholic beverages with sugar the best way of addressing the problem?
If the demand for the product/service you are selling is inelastic, would you increase the price? Why or why not?
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