FIU ECO2023 Assignment: HW04 - Chapter 06 SPRING 14

 Calculate the elasticity of the designated ranges of supply and demand curves on the following graph.

Instructions: Round your answers to 2 decimal places.

uestion and Exercise 6-9

Kean University Professor Henry Saffer and Bentley University Professor Dave Dhaval estimated that if the alcohol industry increased the prices of alcoholic beverages by 100 percent underage drinking would fall by 28 percent and underage binge drinking would fall by 51 percent. (Binge drinking is consuming 5 or more drinks at one occasion.)

Instructions: Round your answers to 2 decimal places.

a. The elasticity for underage drinking is .

The elasticity for binge drinking is .




b. What might explain the difference in elasticities?

Question and Exercise 6-10

A newspaper recently lowered its price from 50 cents to 30 cents. As it did, the number of newspapers sold increased from 240,000 to 280,000.

a. What was the newspaper’s elasticity of demand?

Instructions: Round your answer to 2 decimal places.



b. Given that elasticity, did it make sense for the newspaper to lower its price?

.

c. What would your answer be if much of the firm’s revenue came from advertising and the higher the circulation, the more it could charge for advertising?

uestion and Exercise 6-10 (algo)

A newspaper recently lowered its price from 60 cents to 55 cents. As it did, the number of newspapers sold increased from 250,000 to 290,000.

a. What was the newspaper’s elasticity of demand?

Instructions: Round your answer to 2 decimal places.



b. Given that elasticity, did it make sense for the newspaper to lower its price?


c. What would your answer be if much of the firm’s revenue came from advertising and the higher the circulation, the more it could charge for advertising?

=

uestion and Exercise 6-12

University of Richmond Professor Erik Craft analyzed the states’ pricing of vanity plates. He found that in California, where vanity plates cost $28.75, the elasticity of demand was 0.52. In Massachusetts, where vanity plates cost $50, the elasticity of demand was 3.52.

a. Assuming vanity plates have zero production cost and his estimates are correct, was each state collecting the maximum revenue it could from vanity plates? Explain your reasoning.

b. What recommendation would you have for each state to maximize revenue?



c. If these estimates are correct, which state was most likely to be following a politically unpopular policy?


Part d not included in this question.

Question and Exercise 6-14

According to Exhibitor Relations Co., in 2006 average movie ticket prices were $6.55 and attendance was 1.4 billion; in 2007 ticket prices were $6.88 and attendance was 1.41 billion.

a. What happened to total revenue from 2006 to 2007?

Instructions:Round your answers to 2 decimal places.


b. If you were to estimate elasticity from these figures, what would your estimate be?

Instructions:Round your answer to 2 decimal places. Enter your answer as a positive number. Do NOT include a negative sign.



c. What provisos would you offer about your estimate of elasticity?

Question and Exercise 6-15

Which of the following producers would you expect to support a tax on beer? Which would not? Explain your answer.

a. Producers of hard liquor. Cross-price elasticity with beer: ?0.11.

b. Producers of wine. Cross-price elasticity with beer: 0.23.

.

Question and Exercise 6-16

For each of the following goods, state whether it is a normal good, a luxury, a necessity, or an inferior good. Explain your answers.

a. Vodka.


b. Table salt.

c. Furniture.


d. Perfume.


e. Beer.

f. Sugar.

Question and Exercise 6-18

When the price of ketchup rises by 15 percent, the demand for hot dogs falls by 1 percent.

a. Calculate the cross-price elasticity of demand.

Instructions:Round your answer to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

b. Are the goods complements or substitutes:


c. In the original scenario, what would have to happen to the demand for hot dogs for us to conclude that hot dogs and ketchup are substitutes?

uestion and Exercise 6-18 (algo)

When the price of housing falls by 16 percent, the demand for furniture rises by 3 percent.

a. Calculate the cross-price elasticity of demand.

Instructions:Round your answer to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.



b. Are the goods complements or substitutes:


c. In the original scenario, what would have to happen to the demand for furniture for us to conclude that furniture and housing are substitutes?

uestion and Exercise 6-19

Calculate the income elasticities of demand for the following:

a. Income rises by 20 percent; demand rises by 10 percent.

Instructions:Round your answer to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.



b. Income rises from $30,000 to $40,000; demand increases (at a constant price) from 16 to 19.

Instructions:Round your answer to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

Question and Exercise 6-19 (algo)

Calculate the income elasticities of demand for the following:

a. Income rises by 80 percent; demand increases by 70 percent.

Instructions:Round your answer to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.



b. Income rises from $20,000 to $30,000; demand increases (at a constant price) from 11 to 14.

Instructions:Round your answer to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

Question and Exercise 6-21

Would a shift in demand have a greater effect on the percentage change in equilibrium quantity for a straight-line supply curve that intersects the quantity axis or the price axis?.

Question and Exercise 6-22

For each of the following assume that the supply curve shifts while the demand curve remains constant. What is the direction of the supply shift and relative elasticity of demand?

a. Price remains nearly constant. Quantity increases enormously.




b. Price falls enormously. Quantity does not change.


c. Price rises slightly. Quantity remains nearly constant.