Answer:
The elasticity of a straight-line demand curve varies from one point of the curve to another due to changes in the percentage change in quantity demanded. The price elasticity of demand decreases slowly as curve moves from left to the right.
The price elasticity of demand is a measurement of percentage change in demand considering a percentage change in the price of the commodity. It gives an idea about percentage decline in demand due to a percentage increase in price and a percentage rise in demand due to a percentage fall in price. The following is a formula for measuring the elasticity of demand.
This formula shows that the price elasticity of demand changes if there is a percentage change in the quantity demanded. The movement from left to the right indicates that denominator in the formula increases steadily whereas the numerator decreases.
Thus, considering the changes in percentage change in quantity demanded and price the elasticity of a straight line demand curve differs from one part to another.
Answer:
(a) A large amount of revenue can be generated by imposing taxes on the goods which have inelastic demand. Imposition of taxes results in an increase in the price of goods. If the demand is inelastic, then an increase in the price reduces the demand. But, if the demand is inelastic, then rise in the price do not affect on the quantity demanded.
(b) The demand for goods having inelastic demand is distorted comparatively less due to imposition of taxes. For example, the demand for salt is not distorted due to imposition of taxes considering that the demand for salt is inelastic.
(c) An imposition of taxes leads to reduce the consumption of the goods having elastic demand. An increase in the price leads to decrease the demand if the demand is price elastic. Thus, one would choose impose taxes on elastic harmful commodities for discouraging the consumption.
(d) One would choose to impose taxes on polluting commodities which have elastic demand for discouraging the production. Imposition of taxes tends to increase the price and an increase in the price leads to reduction in the quantity demanded. Producers are likely to reduce production considering decrease in the quantity demanded.
Answer:
The elasticity of demand is a measurement of percentage change in the quantity demanded considering a percentage change in the price of the commodity. It gives an idea about percentage decline in quantity demanded due to a percentage increase in price and a percentage rise in quantity demanded due to a percentage fall in price.
The following formula is used to calculate the percentage rise in the price for reducing the consumption of gasoline by 10 percent.
Putting in formula,
Thus, considering the price elasticity, 33.33 percentage rise in the price is required for reducing the consumption of gasoline by 10 percent.