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Applications of the price elasticity of demand

1) Why do you think that whenever the government wants to increase their revenue they usually decide to increase the tax on items such as gas, tobacco products and/or alcohol?

2) Why is it unlikely that a firm would sell at a price where its demand curve happens to be price inelastic?

3) Assume the demand for cosmetic or plastic surgery is price inelastic. Are the following statements true or false? Explain.

a. when the price of plastic surgery increases, the number of operations decreases.
b. the percentage change in the price of plastic surgery is less than the percentage change in quantity demanded.
c. changes in the price of plastic surgery do not effect the number of operations
d. quantity demanded is quite responsive to changes in price
e. if more plastic surgery is performed, expenditures on plastic surgery will decrease.
f. the marginal revenue of another operation is negative.

 

Macroeconomics, Economics

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