Question 2.3 Consider two goods A and B that have the same supply curve and the...

 

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Question 2.3 Consider two goods A and B that have the same supply curve and the same equilibrium price and quantity as shown in the following diagram. P DB DA Q (a) Explain why you can determine which of the goods (A or B) in the diagram faces a less elastic demand by comparing the slopes of the demand curves at the equilibrium price but not at other prices. (b) Based on your answer is part (a), suggest three reasons to explain why the selected good is less demand elastic. (c) Suppose a per-unit tax of $10 is imposed on both A and B. How will the per-unit tax affect the market equilibrium of A and B. With the aid of the given diagram, explain from which good will the government collect less tax revenue. (d) With the aid of the given diagram, explain which group of consumers (A or B) will bear a smaller proportion of the tax burden. Question 2.3 Consider two goods A and B that have the same supply curve and the same equilibrium price and quantity as shown in the following diagram. P DB DA Q (a) Explain why you can determine which of the goods (A or B) in the diagram faces a less elastic demand by comparing the slopes of the demand curves at the equilibrium price but not at other prices. (b) Based on your answer is part (a), suggest three reasons to explain why the selected good is less demand elastic. (c) Suppose a per-unit tax of $10 is imposed on both A and B. How will the per-unit tax affect the market equilibrium of A and B. With the aid of the given diagram, explain from which good will the government collect less tax revenue. (d) With the aid of the given diagram, explain which group of consumers (A or B) will bear a smaller proportion of the tax burden.

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A Price elasticity of demand change in quantity demanded change in price delta Q Q delta P P delta Q ... View the full answer