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    Elasticity

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    1. The government is known to utilize product's elasticity measures to set taxes and subsidies. Do you feel they should use this information to set policy on tobacco products?

    2. Can you cite an example of why knowing the elasticity of a product would be useful for government officials? How would it be useful to businesses?

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    https://brainmass.com/economics/demand-supply/elasticity-set-taxes-subsidies-126918

    Solution Preview

    Answer 1:
    The government is known to utilize product's elasticity measures to set taxes and subsidies. Using this information to set policy on tobacco products can be debatable. Smoking definitely has negative externalities. In other words, smoking does not only harms the person using the product but also pollutes the air around the smoker thereby harming people around the smoker. Because of the presence of externalities it becomes essential that government internalizes the ...

    Solution Summary

    The solution answers several questions related to elasticity of demand. The elasticity of set taxes and subsidies is determined.

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