Barnes & Noble books -4.00 Coca-Cola -1.22 Cigarettes -0.25 Beer -0.23 Gasoline

Question

Barnes & Noble books
-4.00
Coca-Cola
-1.22
Cigarettes
-0.25
Beer
-0.23
Gasoline
-0.06
address the following questions: 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
Thank you

Explanation / Answer

1.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. 3.Similarly, the burden on buyers (tax borne by them) is more for goods that have inelastic demand. So the same sequence as in Q.2 4.The govt. would tax goods with inelastic demand as people will consume for them despite the change in price

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