Question

Please explain the following in your own words:

Characteristics of Perfect Competition with an example

Difference between inelastic and elastic demand with examples

Affect of tax imposition on buyers and sellers

Consumer surplus and producer surplus with examples

Relationship between the tax size and tax revenue and tax size and deadweight loss

Notes:

Type all the answers in a word file and attach with your submission

Each response must be four full lines

Answer 1

A perfectly competitive market has the following characteristics:

• There are many buyers and sellers in the market.

• Each company makes a similar product.

• Buyers and sellers have access to perfect information about price.

• There are no transaction costs.

• There are no barriers to entry into or exit from the market.

Example - Agricultural markets are examples of nearly perfect competition as well. Imagine shopping at your local farmers' market: there are numerous farmers, selling the same fruits, vegetables and herbs. You can easily find out the prices for the goods, but they are usually all about the same.

Difference between inelastic and elastic demand with examples

Elastic demand get affected by price of goods. Example - if Bus tickets become costlier less people will travel by bus hence demand for bus tickets will fall. So this is elastic demand

But inelastic demand does not have any impact of price..
Example - If price of rice rises becomes costlier then we will still consume it because it is basic human need or you can say if medicines becomes costlier, still we will take it . So this is inelastic demand

Consumer surplus and producer surplus -

Consumer surplus: at the market price, there are consumers who were willing to pay a higher price for the good. The difference is the consumer surplus. An example of a product that enjoys a consumer surplus is gasoline. Gas prices tend to be higher during the day because more people are on the roads.

Producer surplus: at the market price, there are producers who were willing to supply the good at a lower price. Again, the difference is the producer surplus.