Changes

14.  Would government prefer taxing a good that is price elastic or price inelastic?  Explain briefly.

14.  Would government prefer taxing a good that is price elastic or price inelastic?  Explain briefly.

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:Government prefers to tax goods that are price inelastic, because people will still buy the goods and pay the taxes as the price of the goods increase.  As government taxes these goods more and more, people still buy the goods and pay the taxes on them.

15.  Suppose french fries cost $1 and ketchup 10 cents.  When the price of ketchup goes up to 20 cents, the quantity demanded for french fries falls by 10%.  What is the cross elasticity of demand for french fries with respect to ketchup?  Show your work and state whether these goods are complements or substitutes.

15.  Suppose french fries cost $1 and ketchup 10 cents.  When the price of ketchup goes up to 20 cents, the quantity demanded for french fries falls by 10%.  What is the cross elasticity of demand for french fries with respect to ketchup?  Show your work and state whether these goods are complements or substitutes.

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