Fur industry blamed the sales decline on the recession

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From 1982 to 1986 retail sales of furs in the U.S. rose from $0.4 billion to $1.9 billion. After this time, there was no additional growth until 1989 when sales increased slightly to $2 billion. Subsequently there was a plunge in fur sales which dropped 40% in 1992. In 1992 a spokesperson for fur industry blamed the sales decline on the recession.

a) If income elasticity of demand for furs is 3, how much of the decline in furs sales in 1990 can be attributed to change in consumers' income? (adjusted for inflation, total income increased 1% in 1990) explain

 

b) In 1990 the government imposed a 10% tax on furs. If the price elasticity of demand for furs is 1.5, how much of the decrease in fur sales can be attributed to this tax?(assume that the price of furs rose by 10% after the tax was imposed)

Reference no: EM13888473

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