Q3/ Suppose that the price elasticity of demand for a packet of candy is -2.3 and the price elasticity of supply is 0.85 at market equilibrium. As a result of an increase on sales tax per packet, the new equilibrium price rises by 25%. (a) What is the percentage change in quantity demanded of candy? Show your calculation. (b) Explain with a relevant diagram, what will happen to total revenue in the cand industry? (e) With the use of an appropriate diagram, explain with the above information, who will bear most of the sales tax burden between consumers and suppliers?

Q3/ Suppose that the price elasticity of demand for a packet of candy is -2.3 and the price elasticity of supply is 0.85 at market equilibrium. As a result of an increase on sales tax per packet, the new equilibrium price rises by 25%. (a) What is the percentage change in quantity demanded of candy? Show your calculation. (b) Explain with a relevant diagram, what will happen to total revenue in the cand industry? (e) With the use of an appropriate diagram, explain with the above information, who will bear most of the sales tax burden between consumers and suppliers?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Elastic And Its Application

Section: Chapter Questions

Problem 2PA

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