Question
a. If the demand is perfectly inelastic and supply is perfectly elastic. If a tax is imposed, who is going to bear the burden of
a. If the demand is perfectly inelastic and supply is perfectly elastic. If a tax is imposed, who is going to bear the burden of the tax? The buyers or the sellers, and what will happen to the equilibrium quantity? Support your answer with words and graph.
b. Three months before the final exam your land lord sent you a letter stating that your monthly rent will double, effective immediately. What would you do in this case? Analyze your situation citing the concept of price elasticity of demand in the short run and the long run.
c. Good X and Y have a price elasticity of demand of 2.2 and 0.67 respectively. If the price of both goods decrease by 1% what happens to total expenditure for each good? Explain.
d. As average household income in Canada increases by 10%, annual sales of Honda increases from 56000 to 67000. Name and calculate the kind of elasticity and state if it is elastic, or inelastic.
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