a) Which of the following topics is the MOST likely to be studied in microeconomics?
[选择]
Will economic growth come back to pre-pandemic levels?
Did stimulus checks decrease unemployment?
What happens when central banks decrease interest rates?
Why do Boeing and Airbus dominate the civil aircraft manufacturing market?

b) Microeconomists are often interested in elasticities. From a business perspective, elasticities can help businesses to decide how to price their goods. From a policy perspective, elasticities help microeconomists measure the impact of a tax on consumers and producers. For example, to calculate the proportion of the tax borne by consumers, one can use the ratio of the absolute value of the elasticity of supply and the sum of the absolute value of the supply and the demand elasticities (
𝐸
𝑠
and
𝐸
𝑑
). That is:

Suppose the elasticity of demand is -1.25 and the elasticity of supply is 1.25. What share of the tax is borne by consumers?
[选择]
50%
25%
20%
80%

Question

a) Which of the following topics is the MOST likely to be studied in microeconomics? 
[选择]
Will economic growth come back to pre-pandemic levels?
Did stimulus checks decrease unemployment?
What happens when central banks decrease interest rates?
Why do Boeing and Airbus dominate the civil aircraft manufacturing market?

b) Microeconomists are often interested in elasticities. From a business perspective, elasticities can help businesses to decide how to price their goods. From a policy perspective, elasticities help microeconomists measure the impact of a tax on consumers and producers. For example, to calculate the proportion of the tax borne by consumers, one can use the ratio of the absolute value of the elasticity of supply and the sum of the absolute value of the supply and the demand elasticities (
𝐸
𝑠
 and 
𝐸
𝑑
). That is:

Suppose the elasticity of demand is -1.25 and the elasticity of supply is 1.25. What share of the tax is borne by consumers? 
[选择]
50%
25%
20%
80%

BlackTom AI · Accepted Answer

In this two-part question, we evaluate both microeconomics topics and a tax incidence calculation using elasticities.
Option A choices:
- 'Will economic growth come back to pre-pandemic levels?' This is a macroeconomics question, focusing on overall economy performance, not micro-level decision making by individual firms or markets. So it is not the MOST likely topic studied in microeconomics.
- 'Did stimulus checks decrease unemployment?' This relates to fiscal policy and aggregate labor market effects, which are typically analyzed in macroeconomics rather than microeconomics focused on individual markets and firm behavior.
- 'What happens when central banks decrease interest rates?' This is concerned with monetary policy and its macroeconomic effects, again outside the core microeconomic scope.
- 'Why do Boeing and Airbus dominate the civil aircraft manufacturing market?' This option centers on market structure, competition, firm behavior, and the dynamics of a specific industry, which are classic microeconomics topics (especially regarding oligopoly, market power, and long-run profitability). Therefore, this is the most likely microeconomics topic among the given choices.
Option B (elasticities and tax incidence) explores how changes in prices due to taxation affect buyers and sellers, a central microeconomic analysis tool:
- The problem states: elasticity of demand is -1.25 and elasticity of supply is 1.25. The question asks for the share of the tax borne by consumers. The standard rule for tax incidence on a linear supply-and-demand model with elasticities is that the burden on consumers is proportional to the elasticity of supply relative to the sum of the absolute elasticities: share to consumers = |Es| / (|Es| + |Ed|). Here |Es| = 1.25 and |Ed| = 1.25, so the share equals 1.25 / (1.25 + 1.25) = 1.25 / 2.5 = 0.5, or 50%.
- Now evaluate each answer option:
  - 50%: This aligns with the derived incidence calculation, so it is the correct share of the tax borne by consumers given the provided elasticities.
  - 25%: This would require an asymmetry in elasticities (e.g., a much more inelastic supply or demand), which is not the case here since both |Es| and |Ed| are equal. Therefore 25% is incorrect.
  - 20%: Same issue as above; with equal elasticities, 20% would not result from the standard incidence formula, so it is incorrect.
  - 80%: This would imply consumers bear a large majority of the tax burden, which would require a much more inelastic opposite side (or a misapplication of the formula). Given the equal elasticities, 80% is not correct.
In summary, for the tax incidence portion, the correct calculation yields 50% to consumers, and the other three options reflect common misapplications or misunderstandings of how elasticities allocate the tax burden.

ECON3200001.1251 Midterm Exam I

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