ANSWER THE FOLLOWING QUESTIONS IN AT LEAST 100 WORDS PER QUESTION, USE TEXT AS A REFERENCE NO OUTSIDE SOURCES ARE NEEDED. THE REFERENCE TO THE TEXT
IS: Sexton, R. L. (2013). Exploring Economics (6th ed.). South-Western Cengage Learning.
- Review Chapter 6 in textbook. Suppose a local coffee shop knows that its elasticity of demand is 0.2. Would you recommend that the coffee shop increase its price by 20%? Why or why not?
- Review Chapter 6 in textbook. Suppose a cigarette manufacturer knows that its elasticity of demand is 1.3. Would you recommend that they raise price by 20%? Why or why not?
- Would government be better off taxing gasoline or Nike tennis shoes? Use the concept of elasticity (or inelasticity) of demand to defend your choice.
4. Define the following:
a. Consumer surplus
b. Producer surplus
c. Total welfare
d. Deadweight loss
5. Refer to Chapter 7 in textbook. Explain the effects of a tax on consumer and producer surplus. Explain what happens to total welfare when government levies a per-unit tax on a good. Use the concept of deadweight loss in your explanation.
6. What are the two characteristics that must be met for a good to be considered a “public good?” Give an example of the “free rider” problem and explain why the good or service is subject to this problem.