Suppose the market for grass seed can be expressed as Demand: QD = 100 - 2p Supply: QS = 3p Price elasticity of supply is constant at 1. If the demand curve is changed to Q = 10 - .2p, price elasticity of demand at any given price is the same as before. Yet, the incidence of a tax falling on consumers will be higher. Why?
What will be an ideal response?
With the same vertical intercept, the steeper demand curve results in the equilibrium price being lower than with the old demand curve. At the lower price, demand is relatively less elastic than with the original curve. Since the incidence of a specific tax on consumers is n/(n - e), where n is the price elasticity of supply and e is the price elasticity of demand, therefore when e increases (less elastic demand), the incidence on consumers will be higher.
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The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010?
A) $45,977 B) $66,565 C) $87,200 D) $143,486
It is not possible to have an absolute advantage in producing a good or service without having a comparative advantage
Indicate whether the statement is true or false
In the aggregate demand–aggregate supply model, which of these changes is most likely when the cost of production increases in the long run? a. A leftward shift of the short-run aggregate supply curve b. A leftward shift of the short-run aggregate demand curve c. A rightward shift of the short-run aggregate supply curve d. An increase in the potential output level increases
e. A decrease in the actual price level decreases.
Economic efficiency is achieved
a. automatically in a capitalist economy b. when every possible Pareto improvement is exploited c. when all markets are monopolized d. if income is fairly distributed e. whenever a voluntary transaction takes place