EC142
Unit 3 Assignment
Chapter 4: # 4, 7, 9, 10
4. What effect would a rule stating that university students must lie in university dormitories have on the price elasticity of demand for dormitory space? What impact might this in turn have on room rates?
Answer:
The effect of the price elasticity of demand would be more inelastic for adding the rule in the university. The room rates impact would increase as students oppose to follow the rules while they are in that University.
7. You are chairperson of a state tax commission responsible for establishing a program to raise new revenue through exercise taxes. Why would elasticity of demand be important to you in determining the products on which the taxes should be levied?
Answer:
If I were the chairperson of a state tax commission responsible, I would select the products that were price inelastic, because the tax increase will increase the tax revenue. Elasticity of demand would be very important to me considering that “the higher tax on a product that has an elastic demand will bring in less tax revenue.” (Econ pg. 86) In this case, goods and services such as cigarette, liquor and phone service are the helpful to excise taxes because these are the products that have not decrease in demand when an excise tax is levied.

9. Because of a legal settlement over state health care claims, in 1999 the U.S tobacco companies had to raise the average price of a pack of cigarettes from $1.95 to $2.45. The decline price of a pack of cigarettes sales was estimated at 8 percent. What does this imply for the elasticity of demand for cigarettes? Explain.
Answer:
For the estimated sales at 8 percent that makes the price changed by 22.7 percent, the overall demand for cigarettes is far more elastic when user became addict. The percentage in price cannot let the smoker to prevent smoking, so the amounts consume at the