economics tax question?

K

KATHY G

New member
Which of the following producers would you expect to support a tax on beer? Which would not? a. Producers of liquor b. Producers of wine.

Explain your answer by referring to the following estimates:

Beer in response to price changes in wine (Exy) = 0.23

Hard liquor in response to price changes in beer (Exy) = -0.11
 
wine producers will support it since positive cross-price elasticity means that increase of price of beer will increase demand for wine.

Hard liquor producers will oppose it, since their cross-price elasticity is negative, and increase in beer price will reduce demand for liqour.

If you want to impress your professor, ask him how could he explain difference in sign of those elasticities. It will show that you care about economics, and do not know much about drinking :)
 
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