8/9/2023 0 Comments Word memo template 2010![]() The only time you need to put in much detail about the underlying calculations is when there are multiple competing methods that give conflicting results. Census data from 2010-2015 shows that tire sales fall by 2-4% for a 10% increase in price, so in this case it is likely that tire sales would fall by 1% to 2%." Problem: The reader needs to know how the answer is linked to the input data but does not want to wade through a blow by blow description of the calculation.īetter: "The tax would raise tire prices by 5%. Thus, the 5% increase in tire prices would reduce tire sales by 1% to 2%." The demand elasticity for tires has been estimated to be in the range of -0.2 to -0.4. Multiplying it by the price change thus shows the percentage change in the amount of the good that will be demanded. The elasticity shows the percentage change in the quantity demanded for a percentage change in the good's price. ![]() ![]() Next, the percentage change in the price is multiplied by the price elasticity of demand for the good. ![]() The average price of a tire is $100 so the tax would raise the price by 5%. The details can be put in a separate report to be circulated to people interested in the technical issues.īad: "To calculate the effect of the proposed $5 tax on each new tire sold, it is first necessary to convert the tax to an equivalent percentage change in the price. ![]() Although it's important to explain your results briefly, avoid going step by step through the calculations. ![]()
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