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The following present select elasticity of demand elasticity of demand estimates: Barnes & Noble books = - 4.00, Coca-Cola = - 1.22, Cigarettes = -0.25, Beer = -0.23, Gasoline = -0.06.
Using the elasticity estimates in the table above, classify the price elasticity demand as elastic or inelastic. Explain your reasoning.
Explain the implications of those classifications on tax revenue collections when the per-unit tax increases as opposed to decreases.
Using those classifications, make some assumptions regarding tax incidence. For instance, will buyers or sellers pay a larger portion of the tax per unit? Explain.
Conclude, based on the elasticity classifications, their effect on tax revenue and tax incidence, and which goods the government would prefer to tax.
<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
The following present select elasticity of demand elasticity of demand estimates: Barnes & Noble books = - 4.00, Coca-Cola = - 1.22, Cigarettes = -0.25, Beer = -0.23, Gasoline = -0.06.
Using the elasticity estimates in the table above, classify the price elasticity demand as elastic or inelastic. Explain your reasoning.
Explain the implications of those classifications on tax revenue collections when the per-unit tax increases as opposed to decreases.
Using those classifications, make some assumptions regarding tax incidence. For instance, will buyers or sellers pay a larger portion of the tax per unit? Explain.
Conclude, based on the elasticity classifications, their effect on tax revenue and tax incidence, and which goods the government would prefer to tax.
