Economics Homework Help

1) Economists in the Norwegian Government suspect that a relatively large tax on the cooking oil in question will reduce consumption by a very small amount. Are they assuming that the price elasticity of demand for the cooking oils is elastic or inelastic? (Clearly articulate your answer in at least two full sentences)

2) Do you think that the price elasticity of demand for the cooking oil differs between low-income and high-income consumers? Why? (Clearly articulate your answer using economic logic gained from the textbook in at least two full sentences).

3) Suppose that the Norwegian Government is considering “separate” taxes for two different types of cooking oils high in saturated fat: palm oil and coconut oil.

After implementing small scale experiments with both taxes they estimate that the price elasticity of demand for palm oil is 0.5 and 0.4 for coconut oil.

Assume that the Norwegian Government wants to reduce consumption by as much as possible and only has the resources to tax one of the oils. Which one will the Norwegian Government choose to tax? Why? (Clearly articulate your answer in a full paragraph)

4) Suppose that the Norwegian Government wants to reduce the quantity of coconut oil consumption by 23% in order to reach their health improvement goals. How much does the tax need to be in order to meet their goals assuming a price elasticity of demand of 0.5?

5) Suppose the Norwegian Government implements a 50% tax on coconut oil. How much will coconut oil consumption drop by if we assume a 0.5 price elasticity of demand?

Will the Norwegian Government reach its goal of reducing coconut oil consumption by 20%?