Suppose the Demand for Good X Can Be Represented by the Following

question 27

Essay

Suppose the demand for good X can be represented by the following equation: X_d = 22-(1/4)P.Furthermore,suppose that the demand for good Y can be represented by Y_d = 50-P.
(A)Find the elasticity of demand for both good X and good Y when the price is $10.
(B)Suppose that an ad valorem tax is placed on both goods.Good Y is taxed at a rate of 5%.To ensure that the inverse elasticity rule holds,what must be the rate at which good X is taxed?
Reminder: Elasticity at a given price is found using the formula $\varepsilon$ = -(1/S)(P/X),where S is the slope of the demand curve,X is the quantity demanded,and P is the price.

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