Answer Happy

Consider the market for chocolate, where we currently have equilibrium and assume that chocolate is a normal good. In which of the following situations would the impact on the market price of chocolate be the biggest? (3 marks) (a) A tax is imposed on chocolate at the same time as consumer incomes rise. The price elasticity of demand for chocolate is PED = -0.4, while the price elasticity of supply of chocolate is PES = +3. (b) A tax is imposed on chocolate at the same time as consumer incomes rise. The price elasticity of demand for chocolate is PED = -0.4, while the price elasticity of supply of chocolate is PES = +0.3. (c) A tax is imposed on chocolate at the same time as consumer incomes fall. The price elasticity of demand for chocolate is PED = -0.4, while the price elasticity of supply of chocolate is PES = +3. (d) A tax is imposed on chocolate at the same time as consumer incomes fall. The price elasticity of demand for chocolate is PED = -0.4, while the price elasticity of supply of chocolate is PES = +0.3.