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SingaporeEconomicsQuick questions
Price Determination and Elasticity
Quick questions on Applications of elasticity explained: O-Level Economics
2short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What are firms use PED to set prices?Show answer
A firm deciding whether to change its price needs to know the effect on total revenue, and that depends on PED:
What is governments use PED to choose what to tax?Show answer
A government wanting to raise revenue from an indirect tax should target goods with inelastic demand. When demand is inelastic, a tax raises the price but the quantity bought barely falls, so the government collects tax on many units. Goods such as petrol, tobacco and alcohol fit this well, which is why they are heavily taxed.
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