Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 6, Problem 4QP
To determine
Identify the
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In a country the Government determines to increase the tax on gasoline by $0.20 per gallon. The price of gasoline after taxes though only goes up by $0.15. Does this mean the gas station is not collecting the correct amount of taxes?
Suppose the income elasticity of demand for food is 0.5 and the price elasticity of demand -1.0. Suppose also that your housemate Claire spends $10,000 per year on food, that the price of food is $4, and that her income is $50,000.
a) If a $4 sales tax on food were to cause the price of food to double, how much food would Claire’s consume?
b) Suppose she is given a state sales tax rebate of $5,000 to ease the effect of the tax. Now how much food would she eat?
c) Briefly discuss how you know whether she would be better or worse off when given a rebate to the sales tax payments?
Suppose the price elasticity of demand for cigarettes is -0.7 and that the government can essentially set the price of cigarettes by altering the tax rate. If the
government wishes to reduce the quantity of cigarettes demanded by 20 percent, how much must it raise the price of cigarettes?
The government, to achieve its goal, must raise the price of cigarettes by
percent. (Enter your response rounded to two decimal places)
Chapter 6 Solutions
Microeconomics
Ch. 6.1 - On Tuesday, the price and quantity demanded are 7...Ch. 6.1 - What does a price elasticity of demand of 0.39...Ch. 6.1 - Prob. 3STCh. 6.1 - Prob. 4STCh. 6.2 - Prob. 1STCh. 6.2 - Prob. 2STCh. 6.4 - Prob. 1STCh. 6.4 - Prob. 2STCh. 6.4 - Prob. 3STCh. 6.4 - Prob. 4ST
Ch. 6 - Prob. 1QPCh. 6 - For each of the following, identify where demand...Ch. 6 - Prove that price elasticity of demand is not the...Ch. 6 - Prob. 4QPCh. 6 - Prob. 5QPCh. 6 - Suppose a straight-line downward-sloping demand...Ch. 6 - Prob. 7QPCh. 6 - Prob. 8QPCh. 6 - Prob. 9QPCh. 6 - Prob. 10QPCh. 6 - Suppose you learned that the price elasticity of...Ch. 6 - Prob. 12QPCh. 6 - Prob. 13QPCh. 6 - Prob. 14QPCh. 6 - A college raises its annual tuition from 23,000 to...Ch. 6 - As the price of good X rises from 10 to 12, the...Ch. 6 - The quantity demanded of good X rises from 130 to...Ch. 6 - The quantity supplied of a good rises from 120 to...Ch. 6 - In the accompanying figure, what is the price...
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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.arrow_forwardHOW DO YOU RESPOND TO PRICE ELASTICITY? People have unlimited needs and wants for their personal satisfaction and because of that the prices of products easily get changed. Everyone is affected with the new normal in the market. The prices of products have become very expensive since the outbreak of the pandemic, not only in our locality, but in the whole world. If your income or the income of your family is not enough to purchase the basic commodities needed by your family, what goods would you buy, instead? What economic or marketing strategies would you apply? How would you respond to the price changes of these commodities?arrow_forwardAccording to the article, after the city of Berkeley imposed a $0.01 per ounce tax on sugar-sweetened beverages (SSBs), by what percent did consumption of SSBs fall among Berkeley's low-income residents? Who was Berkeley's tax levied on in city law? Buyers or sellers? Assume that the price elasticity of supply for SSBs is elastic and the price elasticity of demand for SSBs is inelastic. What would be the outcome of the sales tax on sugary drinks if the law says that the tax is levied on sellers of the drinks? Who will pay the tax? Assume that the price elasticity of supply for SSBs is elastic and the price elasticity of demand for SSBs is inelastic. What would be the outcome of the sales tax on sugary drinks if the law says that the tax is levied on buyers of the drinks? Who will pay the tax? Explain why your answers to #3 and #4 are different or similar. What determines who pays the tax? What is your opinion of a tax on sugary drinks in your community? Would you be in favor or…arrow_forward
- Suppose the current price of gasoline at the pump is $4 per gallon and that 1 million gallons are sold per day. A politician proposes to add a $1 tax to the price of a gallon of gasoline. She says that the tax will generate $1 million in tax revenues per day. Explain the assumption that she is making.arrow_forwardwhat are Factors affecting the demand of gasolinearrow_forwardSuppose the income elasticity of demand for food is 0.45 and the price elasticity of demand is - 1.00. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $25,000. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity. Felicia's consumption of food would decrease by 1000.00 units. (Enter your response rounded to two decimal places.) Suppose that Felicia gets a tax rebate of $2,500 to ease the effect of the sales tax. What would her consumption of food be now? (Again, use an arc income elasticity to answer this question instead of a point income elasticity.) Felicia's consumption of food would now be 4,175.18 units. (Enter your response rounded to two decimal places.) Is she better or worse off when given a rebate equal to the sales tax…arrow_forward
- Suppose that Felicia gets a tax rebate of $2,500 to ease the effect of the sales tax. What would her consumption of food be now? (Again, use an arc income elasticity to answer this question instead of a point income elasticity.) Felicia's consumption of food would now be nothing unitsarrow_forwardSuppose the income elasticity of demand for food is 0.45 and the price elasticity of demand is 1.00. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $ 25,000. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity. Felicia's consumption of food would decrease by units. ( Enter your response rounded to two decimal places.) Suppose that Felicia gets a tax rebate of $2,500 to ease the effect of the sales tax. What would her consumption of food be now? (Again, use an arc income elasticity to answer this question instead of a point income elasticity.) Felicia's consumption of food would now be 4,175.18 units. (Enter your response rounded to two decimal places.) Is she better or worse off when given a rebate equal to the sales tax payments?…arrow_forwarda)When John can sell totem poles for 1,800 each, he markets 60 annually. when the price falls to $600 each, he is willing to sell only 24 each year. What is his price elasticity of supply ? b) government pays attention to the elasticity of demand when selecting foods and services upon which to levy excise taxes. Assume a $1.00 tax is levied on some good and 10,000 units are sold. What is the tax revenue collected ?arrow_forward
- The figure below represents the market for Gasoline, where initially the equilibrium price was $5.60. The picture shows the effect of a $1.50 tax on gasoline. Using the information from the figure, what is the price elasticity of supply(Using the Midpoint method) when moving from equilibrium to the new supply after the tax?(round your answer to 2 decimal places)arrow_forwardWhat would it mean if the elasticity of demand for a good was zero? Explain whether it can be possible for the price elasticity of demand for a good to be zero, at least over some range of prices. Can the elasticity of demand be zero for all possible prices? Explain how or why not.arrow_forwardYou were gifted a box of 50 thermos bottles that you do not need and you plan to sell them on Ebay. You were initially thinking of asking for $20 per bottle, but then you found out that demand is elastic at $20. Should you lower your asking price? Yes, because when demand is elastic, a lower price increases revenue. Yes, because when demand is inelastic, a lower price increases revenue. No, because when demand is inelastic, a lower price increases revenue. No, because when demand is elastic, a higher price increases revenue.arrow_forward
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