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Author Question: The demand for tobacco is price inelastic. Suppose there is a drought that destroys a large portion ... (Read 113 times)

michelleunicorn

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on: Jun 29, 2018
The demand for tobacco is price inelastic. Suppose there is a drought that destroys a large portion of the tobacco crop.
 
  What will happen in the market for tobacco? Will the equilibrium price and quantity change? If so, how? What will happen to the total revenue earned by tobacco farmers?

Question 2

A progressive tax is a tax that taxes income so that the average tax rate increases with income.
 
  Indicate whether the statement is true or false


kaylee05

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Reply #1 on: Jun 29, 2018
Answer to Question 1

The drought will lower the supply of tobacco. The supply of tobacco will shift to the left, increasing price but lowering the equilibrium quantity sold. However, since the demand for tobacco is price inelastic, the percentage increase in price will be larger than the percentage decrease in quantity demanded. Therefore, the total revenue earned by tobacco farmers will rise.

Answer to Question 2

TRUE


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