Question

please help with 23 & 28

Scenario: When the price of wine is $10 per bottle, Thomas purchases 30 bottles of wine per month. Suppose the government levies a 50 percent tax on all alcoholic beverages. The burden of this tax is to be completely borne by the consumers. This reduces Thomas's consumption to 20 bottles of wine per month 23) 29) Refer to the scenario above. Thomas's arc elasticity of demand for wine is A) -0.33 B) - 1 C) -0.67 D) -0.25

Answer 1

Answer:

Question 1]

At price $10, total bottles of wine purchased is 30 bottles. Government has imposed a 50%, which means the price has been increased by $5($10 * 0.5). The price has been increased to $15. At this price total bottles of wine purchased are reduced to 20 bottles.

Calculate Arc Price elasticity of Demand:

Given:

P1 = $10

P2 = $15

Q1 = 30

Q2 = 20

Cross price elasticity of demand = % change in Quantity demanded / % change of Price

= [Q2 – Q1] * [P1+P2] / [P2-P1] * [Q1+Q2]

= [20 – 30] * [10+15] / [15-10] * [30+20]

= -[10 * 25] / [5 * 50]

= -1

Hence correct option:B] -1

Question 2]

Question 2]

Correct option: B) is equal to the slope between different points on the demand curve

In case of a downward-sloping, linear demand curve, the price elasticity of demand for a good is equal to the slope between different points on the demand curve