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Chapter 5: Q.18 (page 130)
If supply is inelastic, will shifts in demand have a larger effect on equilibrium price or on quantity?
The greater impact will be on equilibrium price.
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A city has built a bridge over a river and it decides to charge a toll to everyone who crosses. For one year, the city charges a variety of different tolls and records information on how many drivers cross the bridge. The city thus gathers information about the elasticity of demand. If the city wishes to raise as much revenue as possible from the tolls, where will the city decide to charge a toll: in the inelastic portion of the demand curve, the elastic portion of the demand curve, or the unit elastic portion? Explain.
For each of the following pairs of goods, which good would you expect to have more elastic demand and why?
a. required textbooks or mystery novels
b. Adele recordings or pop music recordings in general
c. subway rises during the next six months or subway rides during the next five years
d. root beer or water
30. 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?
Why is the supply curve with constant unitary elasticity a straight line?
What do we call a good with an income elasticity less than zero?
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