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Question If You Would Like 8

Suppose a local coffee shop knows that its elasticity of demand is 0.2. Would you recommend that the coffee shop increase its price by 20%? Why or why not?

Suppose a cigarette manufacturer knows that its elasticity of demand is1.3.  Would you recommend that they raise price by 20%?  Why or why not?

Would government be better off taxing gasoline or Nike tennis shoes? Use the concept of elasticity (or inelasticity) of demand to defend yourchoice. 

Define the following:a.  Consumer surplusb.  Producer surplusc.  Total welfared.  Deadweight loss

Explain the effects of a tax on consumer and producer surplus.  Explainwhat happens to total welfare when government levies a per-unit tax on agood.  Use the concept of deadweight loss in your explanation.

Whatare the two characteristics that must be met for a good to beconsidered a “public good?”  Give an example of the “free rider” problemand explain why the good or service is subject to this problem.

Answer in your own words.

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