A1. The demand in Japan
for gasoline is inelastic and therefore not very sensitive to market prices.
Given that, describe the effect of each of the following on the quantity
demanded or the demand for gasoline in Japan.
Indicate whether the effect of each is an upward or downward movement along a
given demand curve or instead involves an outward or inward shift in the
demand curve for gasoline. Explain your answers.
a. A sharp increase in the average price of gasoline in Japan.
b. A sharp rise in the price of automobiles in Japan.
c. A fall in the price of public transportation in Japan.
d. A fall in the price of electric powered cars in Japan.
A2.Suppose the demand for
Brand a Ice Cream is characterized by the following point elasticities:
Own price elasticity =
with Brand B Ice Cream = +2
Income elasticity = +3
Based on the given
elasticities, answer the following. Explain your answers.
a. If a
firm in the industry wishes to increase total sales revenue (ignoring cost
considerations), will it raise or lower its selling price? Why?
happens to the demand for Brand a Ice Cream if the price of Brand B Ice Cream
rises by 10%? Explain your answer.
happens to the demand for Brand a Ice Cream if consumer income falls by 4%? Be
Brand a Ice Cream a normal or inferior good? Explain
Pg. 70 # 8
Use the accompanying graph to answer these
a. Suppose demand is D and supply is S 0. If
a price ceiling of $6 is imposed, what are the resulting shortage and full
b. Suppose demand is D and supply is S 0. If
a price floor of $12 is imposed, what is the resulting surplus? What is the
cost to the government of purchasing any and all unsold units?
c. Suppose demand is D and supply is S 0 so
that the equilibrium price is $10. If an excise tax of $6 is imposed on this
product, what happens to the equilibrium price paid by consumers? The price
received by producers? The number of units sold?
d. Calculate the level of consumer and
producer surplus when demand and supply are given by D and
S 0 respectively.
e. Suppose demand is D and supply is S 0.
Would a price ceiling of $2 benefit any consumers? Explain.
Pg. 75 #23
In a recent speech, the governor of your
state announced: â€œOne of the biggest causes of juvenile delinquency in this
state is the high rate of unemployment among 16 to 19 year olds. The low wages
offered by employers in the state have given fewer teenagers the incentive to
find summer employment. Instead of working all summer, the way we used to,
todayâ€™s teenagers slack off and cause trouble. To address this problem, I
propose to raise the stateâ€™s minimum wage by$1.50 per hour. This will give
teens the proper incentive to go out and find meaningful employment when they
are not in school.â€ Evaluate the governorâ€™s plan to reduce juvenile
Pg 115 #4
Suppose the own price elasticity of demand
for good X is 3, its income elasticity is 1, its advertising elasticity is 2,
and the cross-price elasticity of demand between it and good Y is 4.
Determine how much the consumption of this good will change if:
A. the price of good X decreases by 5
b. The price of good Y increases by 8
c. Advertising decreases by 4 percent.
d. Income increases by 4 percent
Pg. 117 #13
For the first time in two years, Big G (the
cereal division of General Mills) raised cereal prices by 4 percent. If, as a
result of this price increase, the volume of all cereal sold by Big G dropped
by 5 percent, what can you infer about the own price elasticity of demand for
Big G cereal? Can you predict whether revenues on sales of its Lucky Charms
brand increased or decreased? Explain.
Pg. 117 #14
If Starbucksâ€™s marketing department
estimates the income elasticity of demand for its coffee to be 2.6, how will
the prospect of an economic boom (expected to increase consumersâ€™ incomes by 6
percent over the next year) impact the quantity of coffee Starbucks expects to
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