Special This is an Optional Problem Set and will not be accepted late. If you ch

Question

Special This is an Optional Problem Set and will not be accepted late. If you choose to turn it in, it will be graded and your lowest problem set score will be dropped from your final grade. In addition, we will be going over this in class on April 28, 2016, in preparation for the Final Exam - you may want to make a copy! True-False: Circle the appropriate response. Most food products have an income elasticity less than 0. The majority of states in the U.S. place at least a small tax on food purchased for at-home consumption. If two goods are complements, then their cross-price elasticity is positive. Price determination is the interaction of the broad forces of supply and demand which determine the market price level. A larger income elasticity implies a smaller shift in the demand curve given a change in income (all else equal). If the government imposes a new per unit tax, the tax revenues collected by the government will be greater if demand is elastic than if it is inelastic. The U.S. food industry is the least regulated consumer products industry in the U.S.o II. MULTIPLE CHOICE. Circle the letter that corresponds to the most correct answer. If the government wanted to use a food tax in order to significantly reduce the quantity of sweet and sugary drinks we consume, this would require a relatively large per unit food tax on these drinks if: Demand was relatively elastic. Demand was relatively inelastic. Income elasticity was large. Income elasticity was small.

Explanation / Answer

ans1

false

elasticity for food can't be less than 0, food will be consumed even if Income increses or decreases

ans 2

false

ans 3

false

complementary goods have negative cross pricr elasticiity

ans 4

true

ans 5

false

large elasticity will lead to large shift

ans 6

false

tax revenue will be greater if demand is inelastic

ans 7

false

multiple chioce

ans 1

b) demand was relatively inelastic

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