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    Managerial Economics Discussion

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    Given most common goods, will a new specific tax on the purchase and use of the good increase or decrease its equilibrium quantity? Will consumers benefit or lose? Will producers of the product benefit or lose?

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    Solution Preview

    We answer the questions separately,

    1) Will a new specific tax on the purchase and use of the good increase or decrease its equilibrium quantity?

    The answer is it depends on the elasticity of that good. A good is said to be inelastic if the change in price results little in change in demand quantity, while a good is said to be elastic if the change in price of that good results great changes in demand quantities. A example of an inelastic good is medicine (which you can image that people must buy them regardless of how high the price is), on the other hand, a Sony MP3 player would be elastic because if price goes up ...

    Solution Summary

    This posting helps with an managerial economics discussion. the solution discusses whether a new specific tax on the use of goods increases or decreases its equilibrium quantity. It also discusses whether consumers and producers will benefit or lose. The explanation is given in 462 words.

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