Question

1. All straight line demand curves are "unit elastic" for all small changed in P and Q.

A. True B. False

2. As a tax on good X increases

A. Number of units of X transacted (bought and sold) will increase

B. Tax revenue decreases

C. Tax revenue increases

D. Number of units of X transacted (bought and sold) will decrease

3. All straight line demand curves are "unit elastic" for all small changed in P and Q.

A. True B. False

Answer 1

Answer 1: False

In case of straight line demand curve, the elasticity of demand is P/Q*1/slope of the line. In case of a straight line, demand curve slope is same at every point, hence 1/slope is also same at every point on the demand curve.

Hence for a given 1/slope, as we move down the demand curve horizontally, the elasticity declines(due to increase in Q)

Answer 2: D

A tax on good X increasing the final price of the product, thus causing a decline in the demand for the product. Hence there is a decline in the total transaction.