Answer to Question #252708 in Microeconomics for Biba

Question

Analyze several goods (which are often purchased by consumers) then answer the questions: a) determine whether the goods are elastic or inelastic and why. b) describe in the supply and demand curves the impact of the tax burden on these goods!

Answer 1

Consumers frequently select cereal brands as instances of elastic products. It's logical to assume that if the price of a certain brand of cereal increased considerably, people would stop buying it, especially if the pricing other comparable items remained unchanged. In contrast, if this same brand of cereals had a significant price reduction, we'd expect more people to buy it, given its quality is comparable to peers and we aren't in the midst of a major recession.

The removal of tax incentives will result in a fall in cereal brand output at a given level of demand. The equilibrium price will rise and the equilibrium quantity will shrink, as indicated above.