Researchers have estimated the long run demand elasticity for almonds is -0.47, and the long run...

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Researchers have estimated the long run demand elasticity for almonds is -0.47, and the long run supply elasticity is 12.0. The short run demand elasticity for almonds is -0.30, and the short run supply elasticity is 0.5. The government is considering a tax on almonds. What share will be paid by the consumer in the long run? How about the short run? Provide some intuition for why these are different.

Robert · Accepted Answer

2. TRUE FALSE OR UNCERTAIN (explain your answers):
a. Booth has decided to raise money for upkeep of the Harper center through taxes on coffee in the cafeteria. The tax is $0.50 per cup of coffee. The cafeteria currently sells 1000 cups a day, at a price of $1.00. The tax will raise $500 per day.
The answer depends on the assumption made.
TRUE-IF consumption remains unchanged after tax, revenues= .5*1000=500. So for 500 revenues demand is perfectly inelastic. If we assume this then the statement is true. 
FALSE-Typically consumption will fall after a tax, so that this 500 revenue isn’t possible.
b. Commuting on the bus is a normal good.
This is uncertain as it depends on a person’s preferences. An environment conscious person will consider bus to be a normal good, so that even if income rises, consumption of bus services does not fall.  
Other people may shift to own cars as income rises.  
3. Disney World is trying to decide how to set the pricing for its rides. Suppose that it can operate rides costlessly, regardless of how many people take the rides.

Researchers have estimated the long run demand elasticity for almonds is -0.47, and the long run supply elasticity is 12.0. The short run demand elasticity for almonds is -0.30, and the short run...

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