Let P be the price of a good and let I represent consumer income. Which of the following demand functions represents a luxury good with inelastic price response?
A) log(Q) = 4 – 2 log(P) + 2 log(I)
B) log(Q) = 4 - 0.5 log(P) + 0.25 log(I)
C) log(Q) = 4 - 0.25 log(P) + 2 log(I)
D) log(Q) = 4 + 2 log(P) + 0.2 log(I)
C
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The California cigarette market consists of the following supply and demand curves:
QD = 150 - 20p QS = 40p where Q is the number of packs of cigarettes per year (in millions!), and p is the price per pack. a. Compute the market equilibrium price and quantity. b. Calculate the price elasticities of each curve at the equilibrium price/quantity. c. California imposes a tax on cigarettes of $0.90 per pack. Suppliers pay this tax to the government. Compute the after-tax price and quantity. How much do suppliers receive net of tax (per pack)? d. Demand for cigarettes is generally more elastic over longer periods of time as consumers have more time to kick the habit. What does this imply about the tax incidence in the long run as compared to the short run?
An increase in consumers' incomes will have what effect on the equilibrium in the restaurant meals market?
a. Price will increase, and quantity will increase. b. Price will decrease, and quantity will increase. c. Price will increase, and quantity will decrease. d. Price will decrease, and quantity will decrease. e. Price will increase, and quantity will stay the same.