COLEGIO DE LA PURISIMA CONCEPCION

The School of the Archdiocese of Capiz

Roxas City

College of Business, Management and Accountancy

BA 1 – BASIC MICROECONOMICS
First Semester 2020-2021

Name: LIRA S. BALASABAS

Activity 4

1. Is the demand for luxury cars elastic or inelastic? Explain and illustrate.

Answer: Luxury cars are elastic, based on the situation, it could be said that a decrease I
income led to the decrease to the sale of Luxury cars. Individuals no longer have much as
much disposable income as before. Thus, individuals want to save more money in case
something unexpected turns up.

2. What factors influence this elasticity?

Answer: Availability of substitute products could be one of the reasons why the demand
for the luxury items decrease. Luxury cars are under the category Veblen goods which
doesn’t follow the law of demand. Second is the level of price. Also population of
income spent on the good, and preferences of consumers.

3. Is specific tax a better alternative to raise tax revenue? Explain.

Answer: Yes, because having specific tax gives the consumer trust in buying goods by
knowing that their money is worth it giving equality to the needs of the consumer and
also the revenue collectors and company owners. Specific tax gives the right if the
consumer to budget their money and also to raise the tax revenue by consistently buying
the same products.