Elasticity and Government

Q1 This line represents

• 1.     An inelastic demand curve

• 2.     A unit elastic supply curve

• 3.     An elastic demand curve

• 4.     An elastic supply curve

Q2 This line represents

• 1.     A perfectly inelastic demand curve

• 2.  A perfectly elastic demand curve

• 3     A perfectly elastic supply curve

• 4.     An elastic demand curve

Revenue is maximized at the point where

• 1.  Demand is maximally elastic

• 2.  Demand is maximally inelastic

• 3. Demand is unit elastic

• 4. Supply is unit elastic

Income elasticity is large for

• 1.  Medical goods

• 2. Food (a s a whole)

• 3. Fuel

• 4. Luxury cars

The tax incidence of a tax levied on the buyers falls more on

• 1. The buyers side

• 2. The sellers side

• 3. The side which is more elastic

• 4. The side which is more inelastic

If tax is levied on the seller, the burden falls on which side?

• 1. The buyers

• 2. The sellers

• 3. Equally on both sides

• 4. Depends on the elasticity of demand and supply

A binding price ceiling

• 1. Creates a surplus production

• 2. Creates a shortage

• 3. Does not matter

• 4. Increases efficiency

The deadweight loss of taxation increases if

• 1. Supply becomes more elastic

• 2. Supply becomes more inelastic

• 3. Both supply and demand become more inelastic

• 4. Demand becomes more inelastic

What can be said about Tax Revenue?

• 1. Tax revenue always increases with the tax rate.

• 2. Tax revenue is maximal at a 70% tax rate

• 3. There is a tax rate which maximizes tax revenue

• 4. Tax revenue remains the same as tax rate increases

The Laffer Curve (Tax Revenue as a function of Tax Rate)

• 1. Is U-shaped

• 2. is inversely U-shaped

• 3. Is linear

• 4. Is upward sloping