The above figure shows three demand curves labeled D1, D2, and D3. Rank these three demand curves in terms of elasticity at a price of c
What will be an ideal response?
First, compare D1 to D2.
Moving from price a to price c, dQ/dp = Q/(c - a).
Elasticity equals Q/(c - a) ? (c/Q) = c/(c - a) for both D1 and D2.
To compare D2 with D3, consider that they have the same slope; call it b.
Then E1 = bc/Q1 and E3 = bc/Q3. Since Q3 > Q1, D1 is more elastic.
Thus, E1 = E2 > E3 (in absolute terms).
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A. Inflation in developing countries. B. The effect of government subsidies on sugar prices. C. The impact of the minimum wage on families below the poverty level. D. The effect of rent controls on housing prices in New York City.
The graph shows the market for cell phones. The government imposes a sales tax on cell phones at $10 a cell phone. The excess burden of the sales tax on cell phones is
A) $20,000. B) $15,000. C) $35,000. D) $7,500. E) $30,000.
All taxes impose an excess burden.
A. True B. False C. Uncertain
If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves, the money supply: a. decreases by $10,000. b. increases by $5,000
c. decreases by $5,000. d. increases by $50,000. e. decreases by $50,000.