Question

1. Use a diagram to explain how the burden of a tax is shared among producers and consumers when an ad valorem tax is placed on a good which has a relatively inelastic demand.

2. Using appropriate diagrams, explain why the relative burden (incidence) of an indirect tax on the producers and on the consumer varies, depending on the price elasticity of demand. (Nov 09)

3. Define cross elasticity of demand and using diagrams, explain what determines whether cross elasticity of demand is positive or negative.

4. Paper 3 sub-question b: Using an appropriate diagram, explain why the demand for rail travel increases when petrol (gasoline) prices rise. (May 2009)

5. A. Explain the importance of price elasticity of demand and cross-elasticity of demand for business decision-making.

B. Studies have shown that the demand for tobacco tends to be highly price inelastic. Evaluate the view that governments can best reduce smoking by substantially increasing taxes on cigarettes. (May 10)

6. Why might a firm be interested in knowing the various elasticities of demand for the products it sells?

7. A business person believes that halving her prices will double her revenue. Explain why this might not happen.

8. Define income elasticity of demand and using diagrams, explain what determines whether income elasticity of demand is positive or negative.

Answer