The price elasticity of demand for imported whiskey is estimated to be −0.60 over a wide...
The price elasticity of demand for imported whiskey is estimated to be −0.60 over a wide interval of prices. The federal government decides to raise the import tariff on foreign whiskey, causing its price to rise by 40 percent.
a. Will the quantity demanded on imported whiskey rise or fall, and by what percentage amount?
b. What is the percentage change in the total revenue of imported whisky after the tariff increases?
c. What will be the impact on domestic whisky demand after the tariff increases?
Homework Answers
a. Elasticity= % change in quantity demanded / % change in price
- 0.60 = % change in quantity demanded / 0.40
% change in quantity demanded= -0.24%
Quantity demanded of imported whiskey will fall by 24%.
b. % change in total revenue= 40 - 24= 16%
Total revenue will increase by 16%
c. The demand for domestic whiskey will rise after tariff increases because imported whiskey ia expensive now.
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