Econ 451 Spring 2019 HW 1 1. Suppose that a market is characterized by decreasing returns to scale in production, but has free entry in the long run. What are the differ- ences between the short run and long run incidence of a specific tax on this market? 5 points. 2. The government of Washlovia wants to impose a tax on clothes dry- ers. In East Washlovia the demand elasticity for clothes dryers is -2.4 while in West Washlovia the demand elasticity is -1.7. Where will the tax inefficiency be greater? Explain. 5 points. 3. Luxury goods often have much higher elasticities of demand than do goods purchased by a broad base of people. Why, then, are govern- ments more likely to tax luxuries than these \"staple\" goods? 5 points