Different economic studies estimate the price elasticity of demand for certain goods.
Product EstimateD/Elasticity
Barnes & Noble books
-4.00
Coca-Cola
-1.22
Cigarettes
-0.25
Beer
-0.23
Gasoline
-0.06
Using the elasticity estimates in the table above, classify the price elasticity demand as elastic or inelastic. Explain your reasoning. Explain the implications of those classifications on tax revenue collections when the per-unit tax increases as opposed to decreases. Using those classifications, make some assumptions regarding tax incidence. For instance, will buyers or sellers pay a larger portion of the tax per unit? Explain. Conclude, based on the elasticity classifications, their effect on tax revenue and tax incidence, and which goods the government would prefer to tax.
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>>> DETERMINE HOW ELASTICITY AFFECTS THE GOVERNMENTS DECISION TO TAX CERTAIN GOODS?