1. How would you expect the elasticity of demand for each of the following products to compare with the price

elasticity of demand for standard car tires? Explain your answer. a.) Snow tires (not necessary, but handy on snowy days) b.) School bus tires (purchased with tax dollars on a fixed schedule) c.) Bicycle tires (which require a smaller portion of a consumer's income than car tires) d.) Tires made by the most reputable company (more of a luxury than a necessity)

2. For each of the following scenarios, draw a graph that shows how an increase in supply will affect the equilibrium

price and quantity. a.) Demand is perfectly inelastic and supply is upward sloping. b.) Demand is perfectly elastic and supply is upward sloping. c.) Demand is downward sloping and supply is perfectly inelastic.

3. Suppose a 15 percent increase in the price of hot dogs sold at gas stations would lead to a 20 percent decrease in

the quantity of hot dogs purchased at gas stations. What is the price elasticity of demand for hot dogs sold at gas

stations?

4. Suppose that your friend's income increases from $25,000 to $50,000 and as a result, the quantity of energy drinks she purchases increases from 4 per week to 10 per week. What is your friend's income elasticity of demand for

energy drinks?

5. Suppose the price of an ad on a typical news website falls from $1,000 to $800 and as a result, the quantity of ads on news websites rises by 10 percent and the quantity of ads in newspapers falls by 3 percent. a.) What type of elasticity can tell you whether ads in newspapers and ads on news websites are complements or

substitutes? b.) Calculate the elasticity you chose in part (a) and interpret your results.

6. The demand for some pharmaceutical drugs is quite inelastic because customers need the drugs to survive. This has made it possible for some drug companies to charge more than $1,000 for a daily doses of medicine.

a.) In your opinion, is it acceptable for drug companies to charge the most that consumers are willing to pay for some drugs? b.) Does your answer depend on whether the drug companies use their profits to fund research into new drugs? c.) Explain one pro and one con of placing a price ceiling on drug prices.

References:

Anderson, D.A. (2019). Survey of Economics with SaplingPlus. (New York: Worth Publishers). ISBN: 978-1-4641-4465-3 (epub) - CHAPTER 6