Price Elastic Vs Inelastic Essay
Using the elasticity estimates in the table above, classify the price elasticity demand as elastic or inelastic. Explain your reasoning.
The reasoning for these classifications is as follows.
Using the calculation of: price elasticity of demand= (percentage change in quantity)/(percentage change in price)
When the percentage change in the quantity that is demanded is greater than the percentage change in the price, the resulting absolute value of the calculation will be greater than 1. The first two products, Barnes and Noble books and Coca-Cola, will therefore have an elastic demand classification.
When the percentage change in the quantity that is demanded is less than the percentage change in the price, the resulting absolute value of the calculation will be less than 1. The last three products of Cigarettes, Beer, and Gasoline; will therefore have an inelastic demand classification. (R. Glen …show more content…
Basically, tax revenue collections will therefore rise. The tax revenue collections will fall when that price decreases. They move in the same direction.
When the products are elastic, an increase in price from the higher duty would lead to a fall in tax revenue collections. Alternately, when the price decreases, it would lead to a rise in the tax revenue collections. The relationship here is an inverse one. (R. Glen Hubbard, 2012)
Using those classifications, make some assumptions regarding tax incidence. For instance, will buyers or sellers pay a larger portion of the tax per unit? Explain.
If the product is price inelastic to the consumer (if price rose, a small demand loss would be accounted for by the extra revenue), the seller is able to pass the entire or most of the burden of the tax on to the buyer. The tax incidence here falls on the
The reasoning for these classifications is as follows.
Using the calculation of: price elasticity of demand= (percentage change in quantity)/(percentage change in price)
When the percentage change in the quantity that is demanded is greater than the percentage change in the price, the resulting absolute value of the calculation will be greater than 1. The first two products, Barnes and Noble books and Coca-Cola, will therefore have an elastic demand classification.
When the percentage change in the quantity that is demanded is less than the percentage change in the price, the resulting absolute value of the calculation will be less than 1. The last three products of Cigarettes, Beer, and Gasoline; will therefore have an inelastic demand classification. (R. Glen …show more content…
Basically, tax revenue collections will therefore rise. The tax revenue collections will fall when that price decreases. They move in the same direction.
When the products are elastic, an increase in price from the higher duty would lead to a fall in tax revenue collections. Alternately, when the price decreases, it would lead to a rise in the tax revenue collections. The relationship here is an inverse one. (R. Glen Hubbard, 2012)
Using those classifications, make some assumptions regarding tax incidence. For instance, will buyers or sellers pay a larger portion of the tax per unit? Explain.
If the product is price inelastic to the consumer (if price rose, a small demand loss would be accounted for by the extra revenue), the seller is able to pass the entire or most of the burden of the tax on to the buyer. The tax incidence here falls on the