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Chapter 5: Q. 24 (page 130)
What is the formula for elasticity of savings with respect to interest rates?
The formula for the elasticity of savings is.
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In a market where the supply curve is perfectly
inelastic, how does an excise tax affect the price paid by
consumers and the quantity bought and sold?
Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company鈥檚 product at the current price is , would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were ? What if it were ? Explain your answer.
When someone鈥檚 kidneys fail, the person needs to have medical treatment with a dialysis machine (unless or until they receive a kidney transplant) or they will die. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that the supply of such dialysis machines will primarily determine the price.
What is the formula for the wage elasticity of labor supply?
Assume that the supply of low-skilled workers is fairly elastic, but the employers鈥� demand for such workers is fairly inelastic. If the policy goal is to expand employment for low-skilled workers, is it better to focus on policy tools to shift the supply of unskilled labor or on tools to shift the demand for unskilled labor? What if the policy goal is to raise wages for this group? Explain your answers with supply and demand diagrams
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