Chapter 5: Q. 4 (page 129)
Why is the supply curve with constant unitary elasticity a straight line?
Because price and quantity increase proportionally.
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Why is the demand curve with constant unitary elasticity concave?
Describe the general appearance of a demand or a supply curve with infinite elasticity.
A city has built a bridge over a river and it decides
to charge a toll to everyone who crosses. For one year,
the city charges a variety of different tolls and records
information on how many drivers cross the bridge. The
city thus gathers information about elasticity of demand.
If the city wishes to raise as much revenue as possible
from the tolls, where will the city decide to charge a toll:
in the inelastic portion of the demand curve, the elastic
portion of the demand curve, or the unit elastic portion?
Explain.
Under which circumstances does the tax burden fall entirely on consumers?
The supply of paintings by Leonardo Da Vinci, who painted the Mona Lisa and The Last Supper and died in 1519, is highly inelastic. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that demand for these paintings will determine the price.
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