If the elasticity of demand for a product equals 3 and the supply is perfectly elastic, then if a tax is imposed on this product,
A) the buyer pays all the tax.
B) the seller pays all the tax.
C) the buyer pays 3/4 of the tax.
D) the seller pays 3/4 of the tax.
E) the buyer pays 4/3 of the tax.
A
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If a policy is Pareto optimal:
A. it will hurt no one. B. some of the losses will exceed the gains. C. it will hurt more than 50 percent of the population. D. it will hurt less than 50 percent of the population.
Tax Fighters, Inc., develops, markets, and sells software for tax preparation. Tax Fighters, Inc. sells IRS Tax Fighter, a software for completing federal income tax forms and Gopher Basher, a software for completing Minnesota state income tax forms. For simplicity, assume that all of the costs in this industry are the fixed costs of developing the software packages themselves. The marginal cost of producing another disk is approximately zero.Consider the following information about the demand for tax software. There are an equal number of consumers in each group. Figure 7.1 shows the maximum that each type of consumer is willing to pay for each product. As vice president for pricing, explain your optimal bundling and pricing strategy to maximize Tax Fighter profits from the sale of tax
software. Be sure to clearly explain why your strategy is optimal.
What will be an ideal response?