Question1. Governments have sometimes not remembered about elasticity when they formulate tax rule. A few years before the city fathers in Washington DC wanted to raise revenues so they raised gas tax by ten cents a gallon. Revenues from gasoline taxes decreased instead of increasing. The tax increase also managed to put several service stations out of business. Why?

Question2. Using the total revenue test for elasticity, when there is a direct relationship between price and total revenue the demand is elastic.

Question3. Economic activity is not a zero sum game. When trade takes place in a market without force or fraud both parties can win.

Question4. Profit and loss determines how the factors of production are allocated?