Question

In: Economics

30. In a market where the supply curve is perfectly inelastic, how does an excise tax...

30. In a market where the supply curve is perfectly inelastic, how does an excise tax affect the price paid by consumers and the quantity bought and sold?

32. Suppose you could buy shoes one at a time, rather than in pairs. What do you predict the cross-price elasticity for left shoes and right shoes would be?

Solutions

Expert Solution

30) When the supply curve is perfectly inelastic then it would be a vertical straight line which means that the suppliers are not changing their quantity supplied at various prices in which case the entire excise tax is borne by the producers as the excise tax will increase the price of the good where the price received by seller decreases by the amount of tax and price received by consumers remains the same as the tax revenue is transferred to the government and there is no change in quantity bought and sold.

32) Cross price elasticity measures the degree of responsiveness of quantity demanded of left/right shoe to the change in the price of the right/left shoe.

When the shoes can be purchased only one at a time then, they would be substitute to one another and the cross price elasticity between them would be positive and equal to one(unitary) as an increase in the price of the right shoe will cause an increase in demand for the left shoe and vice versa.


Related Solutions

In a graph with a perfectly inelastic supply curve , illustrate the welfare effects of a...
In a graph with a perfectly inelastic supply curve , illustrate the welfare effects of a rent control policy. Show the landlords', renters', and the total surplus in the free market equilibrium and the respective welfare with rent control in effect. Show the welfare loss and the welfare redistribution. Are there renters who could potentially benefit from this policy, but are ultimately excluded?
Consider a market with a perfectly elastic demand curve at p∗= 1,763 and a perfectly inelastic...
Consider a market with a perfectly elastic demand curve at p∗= 1,763 and a perfectly inelastic supply curve at q∗= 452. What is the Consumer Surplus? What is the Producer Surplus?
Suppose the supply curve for life guards is Ls = 40. (Perfectly inelastic labor supply.)
Suppose the supply curve for life guards is Ls = 40. (Perfectly inelastic labor supply.) Suppose the demand curve for lifeguards is LD = 100 – 20W, where L is the number of lifeguards and W is the hourly wage. Graph the supply and demand curves together. Find the equilibrium wage and employment level. Suppose the government imposes a $1 tax per hour per lifeguard on beaches employing lifeguards. Find the new wage the beach pays, the wage the lifeguard...
Supply of good A is perfectly inelastic. Suppose a tax is levied on buyers. Draw a...
Supply of good A is perfectly inelastic. Suppose a tax is levied on buyers. Draw a graph to show the impacts on the market for good A. Your graph should indicate the CS, PS, tax revenue and DWL after tax.
4. If Supply and Demand have the normal shapes (not perfectly elastic or inelastic), a "tax...
4. If Supply and Demand have the normal shapes (not perfectly elastic or inelastic), a "tax on sellers" (as defined by Mankiw) will shift demand upward by less than the amount of the tax, and equlibrium posted price will increase by the same amound as the tax.   True or False? 6. If Supply and Demand have the normal shapes (not perfectly elastic or inelastic), a "tax on sellers" (as defined by Mankiw) will shift demand upward by the amount of...
6- Consider the market for rubber bands. If this market has a very inelastic supply curve...
6- Consider the market for rubber bands. If this market has a very inelastic supply curve and a very elastic demand curve, who would bear most of the burden of a tax on rubber bands? a) Consumers b) Producers c) They would bear the burden more or less equally. d) We can't know who will bear most of the burden. 7- If this market has a very elastic supply curve and a very inelastic demand curve, who would bear most...
a) Explain how to derive the short-term supply curve in a market there perfectly competition prevails!...
a) Explain how to derive the short-term supply curve in a market there perfectly competition prevails! b) How can an increased salary of those who work with production be shown with the help of cost and supply curves? c) Explain the claim that a fully competitive market (where no external effects occurs) both maximizes the efficiency of production and maximizes it socio-economic welfare! d) Discuss how Systembolaget's monopoly(systemsbolag is a monopoly compnay for selling alcohol) affects the socio-economic efficiency!
For each of the following, identify where demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic:
For each of the following, identify where demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic: (a) Price rises by 10 percent, and the quantity demanded falls by 2 percent   (b) Price falls by 5 percent, and the quantity demanded rises by 4 percent.   (c) Price falls by 6 percent, and the quantity demanded does not change.   (d) Price rises by 2 percent and the quantity demanded falls by 1 percent.
The demand and the supply for a good are each neither perfectly elastic nor perfectly inelastic....
The demand and the supply for a good are each neither perfectly elastic nor perfectly inelastic. Imposing an excise tax on the good is: a, paid by only seller b, paid by only buyer c, paid by best buyer and seller d, paid by neither buyer or seller. Which of the following statements about a competitive market is INCORRECT? a, a price floor is aimed at helping consumer b, price ceiling increase quantity demand c, Consumer surplus increase when price...
a. Draw a perfectly competitive firm's labor demand curve and labor supply curve. Label the market...
a. Draw a perfectly competitive firm's labor demand curve and labor supply curve. Label the market equilibrium wage rate and quantity of labor the firm will hire. Label your graph completely. b.Draw the demand and supply curves for labor in a perfectly competitive labor market. Label the equilibrium wage rate and equilibrium quantity of labor. Label your graph completely.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT