Abortion clinics operate in a nearly perfectly competitive market, close to their break-even point. Medoff (2007) estimates that the price elasticity of demand for abortions is -1.071 and the income elasticity is 1.24. The average real price of abortions has remained relatively constant over the last 25 years, which suggests that the supply curve is horizontal. By how much would the market price of abortions and the number of abortions change if a lump-sum tax is assessed on abortion clinics and raises their minimum average cost by 10%? Use a figure to illustrate your answer. By how much would the market price of abortions and the number of abortions change if a lump-sum tax is assessed on abortion clinics that raises their minimum average cost by 10%? Use a figure to illustrate your answer. (Hint: See Solved Problem 8.3.)
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