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Answer to Question #50986 in Microeconomics for alishia

Question #50986
1.Government often use a sales tax to raise tax revenue,which is the tax per unit times the quantity sold.Will a specific tax raise more tax revenue if the demand curve is inelastic or elastic at the original price?Explain

2.In tabular form,differentiate between positive and normative economic analysis.Give an example in each case.

3.Explain why for many goods,the long-run price elasticity of supply is larger than the short -run elasticity.
Expert's answer
1. Government often uses a sales tax to raise tax revenue, which is the tax per unit times the quantity sold. A specific tax will
raise more tax revenue if the demand curve is inelastic, as quantity
will not change significantly, and will raise less tax revenue, if the
demand curve is elastic at the original price.
2. Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic
statements do not have to be correct, but they must be able to be tested
and proved or disproved. Normative economic statements are opinion
based, so they cannot be proved or disproved.
For example, the statement, "government should provide basic healthcare to all citizens" is a normative economic statement.
There is no way to prove whether government "should" provide healthcare;
this statement is based on opinions about the role of government in
individuals' lives, the importance of healthcare and who should pay for
The statement, "government-provided healthcare increases public expenditures" is a positive economic statement, because it can be
proved or disproved by examining healthcare spending data in countries
like Canada and Britain where the government provides healthcare.
3. For many goods, the long-run price elasticity of supply is larger than the short-run elasticity, because in the long-run the
ability to increase or decrease production or to adopt to the change in
price is higher, than in the short-run.

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