Suppose the demand for good X can be represented as X = 22 - (1/4)P. Furthermore,...

 

Transcribed Image Text:

Suppose the demand for good X can be represented as X = 22 - (1/4)P. Furthermore, suppose the demand for good Y can be represented by Y = 50 - P. a. Find the elasticity of demand for good X and for good Y when the price is $10. b. Suppose that an ad valorem tax is placed on both goods. Good Y is taxed at a rate of 5%. To ensure that the inverse elasticity rule holds, what must be the rate at which good X is taxed? c. At a price of $12.50, what must the tax rate for good X be if the tax rate on good Y remains at 5%? Suppose the demand for good X can be represented as X = 22 - (1/4)P. Furthermore, suppose the demand for good Y can be represented by Y = 50 - P. a. Find the elasticity of demand for good X and for good Y when the price is $10. b. Suppose that an ad valorem tax is placed on both goods. Good Y is taxed at a rate of 5%. To ensure that the inverse elasticity rule holds, what must be the rate at which good X is taxed? c. At a price of $12.50, what must the tax rate for good X be if the tax rate on good Y remains at 5%?