The elasticity of supply for luxury cars

Assignment Help Microeconomics

Reference no: EM13783523

Suppose the elasticity of demand for luxury cars is -1.5. The elasticity of supply for luxury cars is 2.5. The elasticity of demand for compact cars is -.90, while the elasticity of supply for compact cars is 1.25. a. The government imposes a tax of $500 per car on the producers of the cars. How much has the after-tax price changed in each market compared to the non-tax case. b. Suppose the untaxed market equilibrium price and quantity is $75k and 2 million, respectively, for the luxury car market, and $25k and 10 million, respectively, for the compact car market. What is the deadweight loss in the market for all cars resulting from the tax? c. Use the information from b. to continue. Suppose the government eliminates the tax on compact cars, and raises taxes on the luxury cars to roughly make up for the lost revenue. Since there were 5x as many compacts as luxury, the government raises the tax on luxury cars by a factor of 5 to $2500 per car. Calculate the deadweight loss in the car market now. d. Provide a brief explanation for your result in c in comparison to b.

Reference no: EM13783523

Questions Cloud

Why is this information important : To prepare for this consulting assignment, you need to learn more about crime rates and explore crime rates by state using the Federal Bureau of Investigation's (FBI's) Uniform Crime Reports, Why is this information important? How do the definition..

The business model : In this discussion, you will further your knowledge of strategic development by: Applying strategic tools to identify and describe a firm's strategy. Thinking and communicating strategically. Identify the business model used by the King of Shaves tha..

Problem related to the gender issues : Consider the anecdote of "Elena" in your text book. Obviously, Elena's mother prefers that her daughter participates in more feminine activities. What is your opinion? Do you think that young children should be guided toward gender specific toys? ..

How many different delegations are possible : Find the expected value associated with the purchase of one ticket - how many different delegations are possible?

The elasticity of supply for luxury cars : Suppose the elasticity of demand for luxury cars is -1.5. The elasticity of supply for luxury cars is 2.5. The elasticity of demand for compact cars is -.90, while the elasticity of supply for compact cars is 1.25. a. The government imposes a tax of ..

Organizations gather information from the environment : Scanning units help organizations gather information from the environment. In making a good diagnostic model, "hands on" knowledge and practical information are more important than organization theory. By nature of the "open systems" model, organizat..

Importance of feminist research on women of color : Transnational feminist theorists discuss the importance of feminist research on women of color, because often they are considered victims by white feminism.

National crime vicitimization survey : In a 2-3 page essay, discuss National Crime Victimization Survey. What are the strengths and weaknesses of the NCVS? How is the data gathered? Who benefits from this information being collected?

Demand rigid structural-measurement-human resource systems : Uncertain and changing industry structures demand rigid structural, measurement, and human resource systems. To diagnose an organization, the OD practitioner carefully examines the management team to discover the cause its problems.

User Account

All Pages