ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is perfectly elastic
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It is perfectly inelastic.
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It is unitary.
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Nothing can be determined about price elasticity of demand.
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Detailed explanation-1: -If the tax is imposed on producers, the supply curve shifts up by the amount of the tax (50 cents) to S2. Then the equilibrium quantity is Q2, the price paid by consumers is P2, and the price received (after taxes are paid) by producers is P2 – 50 cents.
Detailed explanation-2: -The equilibrium price of the good rises and the equilibrium quantity decreases. The buyers and sellers again share the burden of the tax relative to their price elasticities. The buyers have to pay more for the good and the sellers receive less money than before the tax has been imposed.
Detailed explanation-3: -If the number is equal to 1, elasticity of demand is unitary.
Detailed explanation-4: -The price elasticity of demand for a good is defined as the percentage change in demand for a good divided by the percentage change in its price.