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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Question
Chapter 6, Problem 1MC
To determine
Effect of a decrease in taxes on gasoline.
Expert Solution & Answer
Explanation of Solution
Option (d)
As per the
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Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would:
a.
lower tax revenue in both the short and long run.
b.
raise tax revenue in both the short and long run.
c.
raise tax revenue in the short run but lower tax revenue in the long run.
d.
lower tax revenue in the short run but raise tax revenue in the long run.
Explain why the Elasticity value gets smaller as you move down the demand curve.
a.
As we move down the demand curve, equal changes in quantity represent smaller and smaller percentage changes, whereas equal changes in price represent smaller and snmaller percentage changes, and the absolute value of the elasticity measure declines.
b.
As we move down the demand curve, equal changes in quantity represent larger and larger percentage changes, whereas equal changes in price represent larger and larger percentage changes, and the absolute value of the elasticity measure declines.
c.
As we move down the demand curve, equal changes in quantity represent smaller and smaller percentage changes, whereas equal changes in price represent larger and larger percentage changes, and the absolute value of the elasticity measure declines.
d.
As we move up the demand curve, equal changes in quantity represent smaller and smaller percentage changes, whereas equal changes…
Danny "Dimes Donahue is a neighborhood's 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he
bakes himself. At a price of $2 each, he sells 250. At a price of $1.5 each, he sells 300
Instructions: Round your answer to 1 decimal place
a. What is the elasticity of demand?
THE
b. Is demand elastic or inelastic over this price range? (Click to select)
c. If demand had the same elasticity for a price decline from $15 to $1 as it does for the decline from $2 to $1.5, would cutting the price
from $1.5 to $1 increase or decrease Danny's total revenue? [(Click to select)
Chapter 6 Solutions
Managerial Economics: A Problem Solving Approach
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Similar questions
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- Suppose Norman Bates, the owner-manager of a small local hotel, projects the following demand for his rooms: Price $110 130 Quantity purchased (per night) 10 8 a. Calculate the arc price elasticity between $110 and $130. Please report your answer to two decimal places. b. Is the price elasticity of demand between $110 and $130 elastic, unit elastic, or inelastic? C. Will Norman's total revenue rise if he increases the price from $110 to $130 per night? d. If the two points on the demand for Norman's rooms lie on a straight-line demand curve, what then is the point price elasticity of demand at a nightly price of $150? Please show your work and report your answer to one decimal place.arrow_forwardIf the consumers' income increase from $200 to $300, the quantity demanded for product X will increase from 80 to 100 whereas, the quantity demanded for product Y fall from 90 to 63.a.What is income elasticity of demand for product X?b. What kind of product X to these consumers? c. What is income elasticity of demand for product Y ?d.What kind of product Y to these consumers?arrow_forwardTwo drivers--Tom and Jerry--each drive up to a gas station. Before looking at the price, each places an order. Tom says, "I'd like 10 gallons of gas." Jerry says, "I'd like $10 worth of gas." What is each driver's price elasticity of demand? A. Tom and Jerry both have elastic demand. B. Tom has elastic demand while Jerry has inelastic demand. C. Tom has inelastic demand while Jerry has elastic demand. D. Tom and Jerry both have inelastic demand.arrow_forward
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