Consider the short-run aggregate-supply curve in the following graph.
a. Calculate approximately the elasticities of the curve at two price levels, P = 20 and P = 100. (Hint: The price elasticity formula is EP = percentage change in Y / percentage change in P.)
b. Explain the meaning of the elasticity in the context of the AS curve.
c. Compare the two elasticities found in (a) and discuss the results.
Definitions:
Tax Revenue
The income that is gained by governments through taxation from individuals and businesses.
Federal Government
The national government of a federation, which holds authority over the political units constituting the federation, handling matters that affect the country as a whole.
Marginal Tax Rate
The rate at which the last dollar of income is taxed, indicating the percentage of additional income that is paid in taxes.
Personal Income Tax
A tax levied on individuals or households based on their total annual income from all sources.
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