Essay question. Explain why excise taxes are more effective at raising tax reven

Question

Essay question.

Explain why excise taxes are more effective at raising tax revenues when applied to products with price inelastic demand versus ones with price elastic demand. Under what conditions would it be possible for tax revenues to decline with higher excise taxes?

2)Discuss each of the pricing strategies below. What conditions are necessary to make each strategy successful in terms of increasing profits? Explain your answer.

a. A local restaurant/bar offers discounted drinks during “happy hour,” from 5 to 6 PM on weeknights.

b. The price Company X charges for its ink cartridges is nearly as much as it charges for a printer.

c. Packs of 5 T-shirts cost $10 while an individual T-shirt costs $4.

d. Coupons for specials at a local grocery store can be downloaded from an online site.

e. Computer and appliance manufacturers promote service contracts.

f. Microsoft Office includes several programs in one package.

3)You hire a contractor to remodel your house. Identify three potential areas where asymmetric information and the principal-agent problem may be present. What are ways to mitigate the problems? Do you think having local government representatives inspect remodeling and building activities helps to reduce any of the problems? Explain your answers.

4) Explain how natural monopolies cause market failure? How is the deadweight loss associated with this form of market failure measured? What is a typical form of government intervention to correct it? How effective is this type of intervention? Use the material from this course to support your answer.

Explanation / Answer

2.

a. Discounted price could attract increasing number customers. More customers mean more revenue earnings and more profits. Therefore, the necessary condition for making profit is the increasing number of customers in “happy hours”.

b. The company wants to increase the sale of printer. The price of ink cartridge and printer are almost same. Therefore, no one will want to replace the ink cartridge but will want to purchase the new printer instead.

c. Purchasing 5 T-shirts is beneficial than purchasing an individual T-shirt. Each individual shirt is $4, but each shirt out of the group of 5 shirts is ($10 / 5 =) $2. It attracts customers and they will purchase the pack of 5 T-shirt at increasing number, which increases revenues and profits of the company.

d. People must have knowledge and internet connection of downloading. This is the primary condition of making the pricing strategy successful. Increasing number of downloading increases the sale of the grocery shop.

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