Government is advised to tax goods whose demand curves are inelastic if the goal is to raise tax revenues. If the goal is to discourage consumption, then it ought to tax goods whose demand curves are elastic. Explain.
Answer to relevant QuestionsConsider the illicit drug market. First-time drug users have different price elasticities of demand than addicts. Why the difference? Calculate the cross elasticities between the Snickers bar and M&Ms within the S2 and $1 range, and within the SI and $0.50 range. What proof can you offer to show that these are substitute or complementary goods? Stephanie Howard likes mystery novels. Her MU/P ratio for those novels is 60/S10. If the price of the novels falls from $10 to $5, the number of novels Stephanie demands increases. Explain. Low income families want community colleges to impose a tuition price ceiling. This way, more people get a college education. Do you agree? What economic analysis can you offer to make your case? Why are ration coupons typically coupled with price ceilings?
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