Over twenty years ago the city of Washington D.C. was facing a budgetary shortfall. In a plan to increase tax revenue the mayor and city council agreed to raise the excise tax on gasoline
Typically for goods like gasoline which are price inelastic this should have led to an increase in tax revenue. However, just the opposite happened – tax revenue plummeted! What could explain this seemingly paradoxical result?
In order to determine whether a good or service is price elastic or inelastic it is important how narrow or broad the market is defined. Typically, the broader the market, the more inelastic is the demand and vice versa. In the case of Washington D.C. gasoline the market is defined very narrowly. There are many substitutes for Washington D.C. gasoline. Commuters can simply pump for gas near their homes in Maryland and Baltimore before heading to work. In other words, even though gasoline broadly speaking is price inelastic in the present case Washington D.C. gasoline was quite price elastic because of the relatively large number of nearby substitutes.
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Juan and Sophia have decided to stop studying economics and get a bite to eat. Juan wants to go for a pizza and Sophia wants a hamburger. They decide to go for pizza. What can we conclude from this?
A) Juan always gets more utility from pizza than Sophia does. B) Sophia gets less utility from pizza than she could from a hamburger. C) Sophia will get negative utility from the pizza. D) Utility analysis does not work here since Sophia did not eat a hamburger.
Which nation listed below is successfully transitioning from a planned economy to a hybrid market economy?
A. People’s Republic of China B. Japan C. United Kingdom D. United States
Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction
a. decreases U.S. net capital outflow. b. does not change U.S. net capital outflow. c. increases U.S. net capital outflow by more than the value of the bond. d. increases U.S. net capital outflow by the value of the bond.
An increase in the price of steak will probably lead to:
A. an increase in demand for steak. B. no change in the demand for steak or chicken. C. an increase in demand for chicken. D. an increase in the supply for chicken.