David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

CHAPTER 4 Elasticities of demand and supply
are essentially free to produce and the entire price reflects the tax. ( c) A research company measures
elasticity and concludes that the demand for cigarettes is price-elastic. Should you raise or lower
the tax rate? ( d) If you want not merely to get tax revenue but also to make people healthier, should
you set a tax rate above or below that which maximizes revenue from cigarette taxation?
12 Air conditioners are a luxury good. (a) What does this imply, about which elasticity? (b) Which
two countries would you guess have the highest per capita demand for air conditioners at present?
(c) If people continue to get richer and global warming continues to increase, what is likely to
happen to the quantity of air conditioners demanded? And what will this do to global warming?
And hence to the demand for air conditioners? (d) Could this process spiral out of control?
1 3 Essay question Suppose climate change causes .flooding that wipes out much of the UK's agriculture.
Discuss what happens to the price of food in the UK (a) in the short run and (b) in the long run.
Did you assume that the UK made and consumed all food itself or did you allow for international
trade? How does the outcome differ in these two cases?
For solutions to these questions contact your lecturer.
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