5. Gizmos are produced and sold in a competitive market. When there is no tax, the equilibrium...
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5. Gizmos are produced and sold in a competitive market. When there is no tax, the equilibrium price is $100 per gizmo. The own-price elasticity of demand for gizmos is known to be about –0.9, and the own-price elasticity of supply is about 1.2. In commenting on a proposed excise tax of $10 per gizmo, a newspaper article states that “the tax will probably drive the price of gizmos up by about $10.” Is this a reasonable conclusion?
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