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Economics Model Answers Six - 2013 (view source)

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13.  The smaller the proportion of income consumed by the purchase of a good, is it more or less income elastic?  Explain briefly.
 
13.  The smaller the proportion of income consumed by the purchase of a good, is it more or less income elastic?  Explain briefly.
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:
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:The less income elastic the good would be, because an increase in income would not have a big effect.
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:Examples: chewing gum is probably not very income elastic, because in increase in income is not likely to have a big effect on whether someone will buy chewing gum.  But expensive yachts are probably very income elastic, because an increase in income might make the difference whether someone buys the yacht or not.
    
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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