OMBA 6921

OMBA 6921 Industrial Economics W'B Fall 2022 Assignment 1 45 points Due Friday, September 9, 2022 1. (12) Explain what would happen in the following markets given the following demand or supply shocks. In your answer clearly state what happened to supply or demand (whether it increased or decreased) and what would likely happen to the equilibrium price and quantity as a result, other factors constant. A.) Market: Grapes. Shock: A major sci-tific study suggests that individuals who regularly consume grapes live on average ve years longer and have a reduced risk of Alzheimer's disease, B.) Market: Electric vehicles Shock: Due to the recently enacted CHIPS Act, there is a signicant decrease in the price of U.S. semiconductors, which are used as an input in the production of electric vehicles. C.) Market: In home exercise equipment Shock: Due to the waning concerns around the COVID-19 pandemic and loosening restrictions, US consumers go back to gyms and public recreational centers D.) Market: U.S. Cotton. Shock: There is a signicant drought in the Southwestern U.S., where the majority of US. cotton is grown. 2. (11) Suppose the estimated supply function for avocados is given by Q5 = 58 + 15p - 20pm Where p, is the price of fertilizer. The estimated demand for avocados is g'ven by Q: = 144 - 40p + 20m , where or is the price of tomatoes per pound. (3) Solve for the initial equilibrium price and quantity of avocados ifthe price of fertilizer, py,is equal to $0.40 per lb, and price of tomatoes, p,, is equal to $080 per lb. (3) Solve for the new equilihn'um price and quantity of avocados if the price of fertilizer, Pt, increases to $1.10 per lb, and price of tomatoes, pt, remains $0.80 per lb. (3) Use these equilibrium values from parts a. and b. to solve for the price elasticity of demand for avocados. (2) Given your calculations, are avocados elastic, inelastic or unit-elastic? Has the total revenue of avocado producers increased, decreased, or not changed as a result of the change in price and quantity? 3. (12) Read the following article on price elasticity from Harvard Business Review: W (the pdf is in the Assignment folder in Blackboard) that use it to answer the following questions: a) (3) Do companies prefer to sell products that are more elastic or more inelastic? Briey explain. b.) (3) What are the major factors that determine the price elasticity of a product'.7 c.) (3) What does the article describe as the best way to calculate price elasticity, and what other information is relevant to inform marketing efforts? d.) (3) Suppose a marketing company runs a market test and nds that the price elasticity equals -0.6. Would a company be more inclined to increase or to decrease price given this elasticity? Explain what would happen to quantity purchased (by how much it would change) and total revenue (would it increase, decrease, or stay the same) if the company were to decrease price by 10%. 4. (10) Economists Ghose and Han (2014) estimated the elasticity of demand for Google Play apps is equal to -3.7 (sec study here if interested: W). at (3) Suppose Google initially sells 12,000,000 apps per month, then prices decrease by 8%. If the above price elasticity is accurate, what will happen to the quantity demanded of Google Play apps'.7 b. (3) Given your estimates above, calculate the impact to revenue (price x quantity) from Google Play apps before and aer the price decrease. or (4) If apps are highly price elastic as Ghose and Han estimated, why don't all Google Play app developers substantially cut the price they charge for apps? For example, a meditation app like Waking Up (which I use daily and highly recommend) is currently priced at SSO/year. Given the price elasticity as Ghose and Han measured, why don't the developers of Waking Up cut prices from $80/year to, say, $10/year