Name four reasons the demand for good W, a normal good, will decrease and explain them briefly. [Hint; discuss using determinants of demand]

Draw two demand curves, one relatively elastic and one relatively inelastic and explain what causes each to be the way it is using the determinants of elasticity. Give an example of good that would have an inelastic demand curve and one that would generate an elastic demand curve.

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In the partially completed graphs below, show how assumptions concerning the elasticity of demand for a product can affect the amount of an excise tax collected on that product. P₀ is the untaxed price. P₁ is the untaxed price plus the original excise tax. P₂ is the untaxed price plus double excise tax. The original tax revenue is shaded. In both graphs below an increase in the excise tax from t₁ to t₂ causes price to rise from P₁ to P₂.

a) draw the demand curve that will cause the tax rate increase to cause a decrease in tax revenue. Shade and label the following three areas: 1) The are which indicates the tax revenue common to both tax rates. 2) The area which indicates the additional tax revenue raised by the higher tax rate. 3) The are which indicates tax revenue collected under the lower tax but lost at the higher tax rate.