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Homework answers / question archive / Elasticity Assignment 1
Elasticity Assignment 1. Draw a price elastic demand. Then draw a supply increase on the same graph. Which changed more, the price or quantity? 2. Is a price elastic demand more likely a necessity or a luxury? Does it have a few or a lot of substitutes? 3. Draw an inelastic supply. Then draw a demand increase on the same graph. Which changed more price or quantity? 4. Give examples of the following: a) substitute goods b) complements c) inferior goods d) a good that is price elastic of demand e) a good that is price inelastic of supply 5. Suppose a tax is placed on the producer. What happens to supply? Draw the shift in supply assuming that demand is inelastic. Show in the graph who bears the burden of the tax (in other words, is the producer able or unable to pass the tax cost to the consumer?)
1. quantity changes more than the prices in the given graph.
2. price elastic demand is more likely is luxury as rise in price leads to fall in the demand for luxury goods but rise or fall in the price does not affects demand for necessity goods. yes it is based on substitute goods as The more possible substitutes there are for a given good or service, the greater the elasticity of
3. as per the graph price will change more because we can not increase the supply only demand would increase but supply is constant then only price will be change significantly
4. substitute goods : Tea and coffee.
complementary goods. : bread and butter., car and petrole.
inferior goods: instant noodles, hamburger, canned goods, and frozen dinners. .
a good with price elastic : Smart Watch
A good with price inelastic : Salt, utilities, prescription drugs, and tobacco products.
5.The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. when tax is imposed on supplier then supply decrease but demand is inelastic then more burden on consumer will be there. So producer will be able shift the burden of tax on consumer.
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