Consider a good, called an ynoxinul, with a price elasticity of demand of -4.
i) Suppose that there is a monopoly which controls the sale of ynoxinuls. Would the firm gain or lose money by raising the price?
ii) Suppose that the government want to tax ynoxinuls. Would a modest unit tax have a large or small impact on the number of ynoxinuls sold? Justify. Do you think that the price faced by consumers would rise a little or a lot in the face of such a tax?
iii) If a second good, a ufebtus, had a cross price elasticity with ynoxinuls of .2, would the demand for ufebti go up or down in the face of the tax on ynoxinuls? By a lot of a little? Why?