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Thread: Curve

  1. #1
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    Curve

    What is the error in the following argument? "An increased sales tax on gasoline won't reduce consumption, because while the higher price will at first reduce demand, the reduced demand will eventually bring the price back down again, and consumption will return to its former level."
    Select one:
    a. The ultimate effect on consumption may be to increase it beyond its original level.
    b. the tax-induced price increase will necessarily be greater than the price reduction due to the lower demand, because demand is never perfectly inelastic.
    c. A reduced demand does not cause lower prices.
    d. The tax-induced price increase may be greater than the price reduction due to the lower demand.
    e. A higher price doesn't reduce demand.




    Is it (C)
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  2. #2
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    Re: Curve

    No, it certainly isn't C. When producers see a drop in demand it is typical for them to reduce prices to try to incease demand again. What do you know about this topic? You titled this "curve". What do you know about "supply and demand curves"? B refers to not being "perfectly inelastic". Do you know what "elastic" and "inelastic" mean here?

    (This really is not a "mathematics" problem. While some very simple math can be used, this is really referring to concepts in economics.)
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  3. #3
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    Re: Curve

    elasticity is % change in Quantity/% change in price
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  4. #4
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    Re: Curve

    Yes, but do you know what that means? How are "elastic" and "inelastic" related to "elasticity"? And how does "elasticity" of a good effect the market for that good?
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