MicroEconomics Homework Essay Example | Topics and Well Written Essays - 1500 words

MicroEconomics Homework - Essay Example For example, a product with really high elasticity will mean that you don’t value a product very much and hence it will have a low consumer surplus and vice versa. 2) Elasticity, simply, is the responsiveness of quantity demanded to a change in price. For example, when you levy a sales tax on any product its price increases. This price increase is going to decrease the quantity demanded of this product. The magnitude of change, however, will depend upon the elasticity of demand. For example, if sales-tax is levied on a product with inelastic demand, then quantity is not going to fall by a large amount and large revenue will be collected. On the other hand, if sales-tax is levied on a product with elastic demand, the change in price is going to decrease the quantity by a greater amount and revenue collected will be less. 3) I think that the government should charge those products with high price inelasticity of supply. This is because, if it levies taxes on products with high elasticity of supply, the suppliers would pressurize the government by supplying fewer amounts in the market and hence majority of consumers will be deprived of the product. So, it should charge a product with low price elasticity of demand so that supply does not change much and consumers get the adequate amount of product. 4) Simply, the perfectly inelastic demand and supply would ensure that imposition of tax is going to reduce the quantity in the market by smaller amounts and hence, this will result in little or no welfare loss. 5) In this case, consumer will bear a bigger burden of the tax because suppliers will easily pass it on consumer by supplying less, but consumers would encourage them to keep producing the same amount of cigarettes by paying a bigger share of tax. 7) In this case when price is more inelastic for suppliers and less inelastic for consumer, then the suppliers of a product