Suppose the income elasticity of demand for food is 0.5 and the price elasticity of demand -1.0. Suppose also that your housemate Claire spends $10,000 per year on food, that the price of food is $4, and that her keome is S50,000. a) If a S4 sales tax on food were to cause the price of food to double, how much food woukd Claire's consume? b) Suppose she is given a state sales tax rebate of $5,000 to case the effect of the tax. Now how much food would she-cat?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Suppose the income elasticity of demand for food is 0.5 and the price casticity of
demand -1.0. Suppose also that your housemate Claire spends $10,000 per year on food, that
the price of food is $4, and that her Acome is $50,000.
a) If a S4 sales tax on food were to cause the price of food to double, how much food
woukl Claire's consume?
b) Suppose she is given a state sales tax rebate of $5,000 to case the effect of the tax."
Now how much food would she-cat?
c) Briefly discuss how you know whether she would be better or worse off when given a
rebate to the sales tax payments?
Transcribed Image Text:Suppose the income elasticity of demand for food is 0.5 and the price casticity of demand -1.0. Suppose also that your housemate Claire spends $10,000 per year on food, that the price of food is $4, and that her Acome is $50,000. a) If a S4 sales tax on food were to cause the price of food to double, how much food woukl Claire's consume? b) Suppose she is given a state sales tax rebate of $5,000 to case the effect of the tax." Now how much food would she-cat? c) Briefly discuss how you know whether she would be better or worse off when given a rebate to the sales tax payments?
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