Question
1. What does it mean if D (or S) is inelastic? What causes S or D to be more elastic (or inelastic)? What exactly does
1.
What does it mean if D (or S) is inelastic?
What causes S or D to be more elastic (or inelastic)?
What exactly does it mean if the elasticity of demand is 3, Ed = 3? What if Ed = 0.5?
2. Economists usually believe that the demand for a product is more elastic if we look over a longer period of time - i.e. if we look at the D for gasoline over 1 year instead of over 1 day. Why would demand become more elastic?
3. Suppose we tax imported cars. A. How does this affect the market for imported cars? Answer for both Price and Quality. B. How does the tax affect the market for domestic cars? C. How would answers to (A) and (B) change if demand for foreign cars is very inelastic? What if supply for US cars is very elastic? D. Why does the elasticity of demand for foreign cars affect the revenue the government will collect from the tax?
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