Explain how demand, elasticity, and total revenue are all related to each other. Explain this relationship using at least two examples that incorporates all three concepts.
Here is an example of what the response should be? And provide an example.
If demand is elastic, an increase in price will cause a(n) _________ in total revenue.
If demand is ineleastic, an increase in price will __________ in total revenue.
Example of accepted examples:
Because there are relatively few good substitutes, the demand for gasoline is relatively inelastic. Therefore, in there is an increase in the price of gasoline, less gasoline will be sold by the total revenue of the firm will increase.
The Incidence of the Tax:
Identify and explain the factors that determine who actually bears the burden of a tax increase on a specific good, such as gasoline, cigarettes, or some other product. Use at least two examples in your response. Is the incidence of the tax a consideration when government imposes this tax increase? Why or why not?
Remember, one of the main topics is elasticity. The economic burden from a sales tax depends upon the elasticity of demand/supply for the good. I will be looking for comments incorporating these ideas when I am reading your postings. I will also be looking for an explanation on what we mean when we talk about the 'burden' of a tax.
It would be wise to provide hypothetical numerical examples in your posting. For instance, give the price of a good or service before a tax is imposed, the amount of the tax, and how much of the tax the consumers and producers pay. Give examples with elastic/inelastic demand/supply.
For example, you might explicitly state:
· The more elastic the demand, ________ will bear the greater burden of the tax.
· The more inelastic the demand, ________ will bear the greater burden of the tax.
· The more elastic the supply, ________ will bear the greater burden of the tax.
· The more inelastic the supply, ________ will bear the greater burden of the tax
Fill in consumers or producers in the blanks.