Question

Short Answer **Answer any 2 of the following 3 questions in no more than a paragraph.

1. True or false? A firm looking to maximize revenue will never, ever set their price where their demand curve is elastic.

2. A politician shouts to thunderous applause, “To help fight racial discrimination, this city needs rent control! At mandatory low rents, landlords will not be able to afford to discriminate based on things like race or religion.” Comment on this assertion.

3. A talk radio host asserts, “Sales taxes aren’t paid by businesses -- they’re simply passed along to consumers.” Under what circumstances is this largely true?

Answer 1

1. FALSE. A firm who wants to maximize revenue would want to would want to sell a higher quantity of their products. So, if the price is set on the demand curve where it is elastic, slight changes in the price will have a huge impact on the quantity demanded and hence impact the revenue of the firm. So, if the firm wishes to increase the total revenue even a slight decrease can help the firm increase the quantity demanded at a higher rate. So, the firm can set their price where the demand curve is elastic. Hence, the statement is false.

2. Racial discrimination is when a person is treated differently and not provided with the same opportunities as others in the same situation or scenario. This unjust treatment can attributed to factors such race, skin color, ethnic origin. So, the politician statement on fighting against racial discrimination through rent control is not going to solve the problem. This discrimination is because of the mind-set of the people. Having rent control will not change their mind-set towards these people. Also, at lower rents there will be more people willing to pay for the room or apartment. Hence, rejecting some people based on their race or color will not do them any harm as there will be many others that will be willing to rent that space.