Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 5.1P
World famous Burpee Beer is brewed in the small town of West Burpee. Currently, the town of West Burpee levies a $2 per-case tax on all Burpee Beer, and the brewery sells 20,000 cases a year at a total price of $20 per case. The mayor of West Burpee has decided to erect a statue of himself in the town square at a cost of $20,000, and wants to raise the money from additional tax revenue from sales of Burpee Beer. He has asked each of the three town council members to come up with a plan to raise the additional $20,000, and their plans are as follows: Council member Simpson advises increasing the percase tax by $1, Council member Milhouse advises raising the tax by $2 per case, and council member Flanders advises reducing the current tax by $0.50 per case. For each of the three council member’s plans, determine the following:
- a. How many total cases of beer would need to be produced to increase tax revenue by exactly $20,000?
- b. What is the
price elasticity of demand for Burpee Beer if the tax revenue increases by exactly $20,000? - c. How much total revenue will Burpee Beer receive if the tax revenue increases by exactly $20,000?
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Suppose you are advising an industry association on the predicted effects of a price change on quantity demanded and total expenditure on its product. The current price is
$1.20 per unit, and quantity demanded is 2500 units per day. Based on extensive empirical studies, you know that price elasticity of demand for the product is 0.7. If the price
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The predicted percentage change in quantity demanded is%.
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Total expenditure is
related with price because the price elasticity of demand is
Question Viewer
so total expenditure will
1
Gasoline & Politics In the spring of 2008, Senators John McCain and Hillary Clinton (who were then running for president) proposed a temporary elimination of the federal gasoline tax, effective only during the summer of 2008, in order to help consumers deal with high gasoline prices.
Assume that during the summer, when gasoline demand is high because of vacation driving, gasoline refiners are operating at full capacity. What does this assumption suggest about the price elasticity of supply?
In light of your answer to the previous question, whom do you predict would benefit from the temporary gas tax holiday?
A city government decides to tax hotel
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1000 rooms were typically rented out per
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to $110 per room. If the price per hotel
room was $100 per night before the tax,
which of the following can we conclude?
The supply of hotel rooms is more price
elastic than is the demand
The demand for hotel rooms is more
price elastic than is the supply
The supply of hotel rooms after the tax is
greater than the demand for hotel rooms
The demand for hotel rooms after the tax
is greater than the supply of hotel rooms
We cannot conclude any of the options
given with only the information provided.
Chapter 5 Solutions
Principles of Economics (12th Edition)
Ch. 5 - Prob. 1.1PCh. 5 - Prob. 2.1PCh. 5 - Prob. 2.2PCh. 5 - Using the midpoint formula, calculate elasticity...Ch. 5 - A sporting goods store has estimated the demand...Ch. 5 - For each of the following scenarios, decide...Ch. 5 - For the following statements, decide whether you...Ch. 5 - Taxicab fares in most cities are regulated....Ch. 5 - Studies have fixed the short-run price elasticity...Ch. 5 - Prob. 2.9P
Ch. 5 - Prob. 2.10PCh. 5 - Prob. 2.11PCh. 5 - [Related to the Economics in Practice on p. 99] At...Ch. 5 - Prob. 3.2PCh. 5 - Prob. 4.1PCh. 5 - Prob. 4.2PCh. 5 - The cross-price elasticity values for three sets...Ch. 5 - Prob. 4.4PCh. 5 - World famous Burpee Beer is brewed in the small...Ch. 5 - Prob. 5.2P
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