Question

What kind of experiment could a firm conduct to determine the demand curve it faces?

  1. Suppose the government wants to discourage consumption of some good (such as cigarettes or liquor). How effective will specific taxes and lump sum taxes (a pure reduction in income) be in reducing consumption? What type of information do you need to answer this question?
  2. How can the firm use the information contained in an Engel Curve and government forecasts of income to predict future demand?
  3. Are you aware of any Giffen goods? What types of goods might these be?
  4. Should the government try to pick the marginal tax rate to maximize government revenue?
  5. Think of several goods that, at your current income level, you would consider normal, others that you would consider inferior. Try to determine the defining characteristics of normal and inferior goods by evaluating your list. What do the two groups have in common? How are they different from each other?
  6. In the United States, Social Security is tied to the CPI-W, a consumer price index for urban and wage earners. What are the advantages of this index over the more general CPI? How does the welfare of Social Security recipients depend on the distribution of price changes across the goods in the basket?

What kind of experiment could a firm conduct to determine the demand curve it faces? Suppose the government wants to discourage consumption of some
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