As you have probably noticed, many politicians speak and act as if they were poor economics students. If you hear a politician say "Since we sold 1,000,000 fishing licenses in Florida last year, raising the price of fishing licenses by $2 this year will increase the state's license revenues by $2,000,000" why do you know he was one of those who did poorly in his economics class?

Question

Terrence Parks

Business

8 June, 03:54

As you have probably noticed, many politicians speak and act as if they were poor economics students. If you hear a politician say "Since we sold 1,000,000 fishing licenses in Florida last year, raising the price of fishing licenses by $2 this year will increase the state's license revenues by $2,000,000" why do you know he was one of those who did poorly in his economics class?

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Answers (1)

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Dillan Pham · Answer 1

Because the demand should decrease, making the revenue not proportional to the price's increase.

Explanation:

It is wrong to assume a proportional increase of the license revenues with the price.

The revenue is the product of the number of fishing lines and the price.

The fishing licenses are not an essential good, so its demand is elastic.

Assuming that the number of fishing licenses to sell at the new price, $2 greater than the last year's price, will be the same as the number of fishing licenses sold the last year is a wrong assumption, because the demand should be expected to decrease.

The elasticity of the demand states that as the price of a not essential good increases, it demands will decrease, because the public will prefer another good. For instance, the public might start birding.