Project Part 1 Introduction: Different economic studies estimate the price elast
ID: 1176579 • Letter: P
Question
Project Part 1 Introduction: Different economic studies estimate the price elasticity of demand for certain goods, some of which are reported on page 176 of the Hubbard/O%u2019Brien textbook. The following table presents select elasticity of demand estimates from those reported on page 176. Product
Estimated Elasticity
Barnes & Noble books
-4.00
Coca-Cola
-1.22
Cigarettes
-0.25
Beer
-0.23
Gasoline
-0.06
Using the elasticity estimates in the table above, classify the price elasticity demand as elastic or inelastic. Explain your reasoning.
Explain the implications of those classifications on tax revenue collections when the per-unit tax increases as opposed to decreases.
Using those classifications, make some assumptions regarding tax incidence. For instance, will buyers or sellers pay a larger portion of the tax per unit? Explain.
Conclude, based on the elasticity classifications, their effect on tax revenue and tax incidence, and which goods the government would prefer to tax.
Project Part 1 Introduction: Different economic studies estimate the price elasticity of demand for certain goods, some of which are reported on page 176 of the Hubbard/O%u2019Brien textbook. The following table presents select elasticity of demand estimates from those reported on page 176. Product
Estimated Elasticity
Barnes & Noble books
-4.00
Coca-Cola
-1.22
Cigarettes
-0.25
Beer
-0.23
Gasoline
-0.06
Explanation / Answer
.Barnes & Noble books -4.00 = Elastic Coca-Cola -1.22 = Elastic Cigarettes -0.25 = Inelastic Beer -0.23 = Inelastic Gasoline -0.06 = Inelastic 2. Tax revenue collections will be in the following order: Gasoline > Beer > Cigarettes > Coca cola > Books The more the elasticity, the less the revenue collected.
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