Peter J Wilcoxen > PAI 300 Economics for Policy Analysis

D17: Example Elasticity Analysis

Suppose that the market price of a good with no tax is initially $10 and 1000 units are being traded. The government would like to know the impact of imposing a $14 tax. An earlier analysis has found that under the tax, the buyer price would rise to `P^d` = $20 and the seller price would fall to `P^s`  = $6. Demand for the good has an elasticity of -0.2 and the elasticity of supply is 0.5.

Use the spreadsheet in Teams to analyze the impact of the tax.

  1. The data cells are already named so use the full Excel app rather than the web version.

  2. Note that there's already a formula in the DWL/$ cell but it shows #DIV/0!. When the spreadsheet is complete and the numbers are all correct, it should show -13%.

  3. Add the given data to the green cells on the form.
  4. Add appropriate formulas to all of the remaining cells with borders.
  5. As a check, make sure your buyer and seller Q2 values are the same
  6. Also make sure the DWL per dollar cell is -13%.

Save and submit the results.

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    Peter J Wilcoxen, The Maxwell School, Syracuse University
    Revised 02/13/2024