What assumption is she making about the elasticity of demand

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1. Suppose the current price of gasoline at the pump is $4 per gallon and that one million gallons are sold per month in Texas. A local politician proposes to add a 10-cent tax to the price of a gallon of gasoline, and she claims that the tax will generate $1.2 million in extra tax revenues per year (1 million gallons × 10 cents x 12 months = $1.2 million). What assumption is she making about the elasticity of demand? Is the assumption correct?

2. As the price of good X rises from $10 to $12, the quantity demanded of good Y rises from 100 units to 140 units. What is the cross elasticity of demand? Are X and Y substitutes or complements?

Reference no: EM13802676

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