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The following are coefficients of elasticity for different products: Product A: .738, Product B: 2.57, Product...

The following are coefficients of elasticity for different products: Product A: .738, Product B: 2.57, Product C: .37, Product D: 1.35. Which of these would a retailer like Walmart or Target want to carry? Which of these would the Federal government want to place an excise tax? Why?
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Answer #1

Ans) Price elasticity of demand is the responsiveness of quantity demanded to change in price.

When value of elasticity is less than 1, the demand is inelastic. When value of elasticity is more than 1 then demand is elastic.

Here, product C is least elastic (or most inelastic) and product B is most elastic.

If we arrange from least elastic to most elastic then÷

C, A, D, B

Now, Walmart and Target would like to sell the product with less elastic demand because by doing so, they can increase their revenue by increasing the price without the fear of losing significant customers. Therefore, product C will be most suitable.

Also, government wants to tax the good with least elastic demand because it gives most revenue with least deadweightloss. So, product C is best choice.

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