Measuring the price elasticity of supply

Question 1: You are the chairperson of a state tax commission responsible for establishing a program to raise new revenue through exercise taxes. Why would elasticity of demand be important to you in determining the products on which the taxes should be levied?

Question 2: How would the following changes in price affect total revenue? That is, would total revenue increase, decline, or remained unchanged?

a. Price falls and demand is inelastic.
b. Price rises and demand is elastic.
c. Price rises and supply is elastic.
d. Price rises and supply is inelastic.
e. Price rises and demand is inelastic.
f. Price falls and demand is elastic.
g. Price falls and demand is of unit elasticity.

Question 3: What are the major determinants of price elasticity of demand? Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or inelastic.

a. bottled water
b. toothpaste
c. Crest toothpaste
d. ketchup
e. diamond bracelets
f. Microsoft Windows operating system

Question 4: What is the formula for measuring the price elasticity of supply? Suppose the price of apples goes up from \$20 to \$22 a box. In direct response, Goldsboro Farms supplies 1200 boxes of apples instead of 1000 boxes. Compare the coefficient of price elasticity (midpoints approach) for Goldsbor'?s supply. Is its supply elastic or inelastic?

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