Ch 6 Application Exercise Part 1

A  All of the available answers are correct.

B  Cuernavaca is a small geographic region compared to Mexico nationally overall. Thus, citizens in Cuernavaca can avoid the tax by going outside of Cuernavaca’s geographical region to another city that doesn’t have the tax in place. A tax at the national level is much more difficult to avoid.

C  There is nothing that can cause the tax to fail in reaching the defined health goals.

D  Cuernavaca is a large geographic region compared to Mexico nationally overall. Thus, citizens in Cuernavaca cannot avoid the tax by going outside of Cuernavaca’s geographical region to another city that doesn’t have the tax in place. A tax at the national level is much easier to avoid.

A  Yes because consumption will be reduced by 28.0%

B  No because consumption will only be reduced by 5.445%.

C  No because consumption will only be reduced by 7.0%.

D  Yes because consumption will be reduced by 20.0%.

A  20.1234%

B  28.00%

C  1.40%

D  14.285714%

A  If the goal is to raise as much revenue as possible the Mexican Government would choose to tax high-calorie snack foods because the price elasticity of demand is less than soda.  This means that consumers of high-calorie snack foods are not as price sensitive compared to soda consumers.  Thus, if taxed, their reduction in consumption will be less than their soda counterpart’s reduction in consumption.

B  The Mexican Government will choose to tax soda because soda is always elastic.

C  The Mexican government will choose to tax soda because its price elasticity of demand is greater than the price elasticity of demand for high-calorie snack foods.

D  If the goal is to raise as much revenue as possible the Mexican Government would choose to tax high-calorie snack foods because the price elasticity of demand is greater than soda. This means that consumers of high-calorie snack foods are much more price sensitive compared to soda consumers. Thus, if taxed, their reduction in consumption will be greater than their soda counterpart’s reduction in consumption.

A  A tax or price increase, on low income individuals is an percentage of an individual’s budget and income when compared to high income individuals. So they are not anymore sensitive to price increases when compared to high income individuals. Therefore, we would expect the price elasticity of demand for low income individuals to not differ with high income individual’s and the overall population’s price elasticity of demand.

B  A tax or price increase, on low income individuals is a much lower percentage of an individual’s budget and income when compared to high income individuals. So they are much less sensitive to price increases when compared to high income individuals. Therefore, we would expect the price elasticity of demand for low income individuals to be much lower than high income individual’s and the overall population’s price elasticity of demand.

C  A tax or price increase, on low income individuals is a much higher percentage of an individual’s budget and income when compared to high income individuals. So they are much more sensitive to price increases when compared to high income individuals. Therefore, we would expect the price elasticity of demand for low income individuals to be much greater than high income individual’s and the overall population’s price elasticity of demand.

D  All of the available answers are correct.

A  perfectly inelastic

B  elastic

C  perfectly elastic

D  inelastic