Q1: Supply and Demand Graphing and Analysis

You are writing an article for the business section of your news paper. You have been asked to provide a concise analysis of the market trends in the generic soda industry as a method of evaluating your economic and critical thinking skills. The following information is provided as part of the question,

• Assume the US generic soda industry is competitive and begins in market equilibrium.
• The income elasticity coefficient for generic soda is - 0.07
• You are asked to graph the impact of the following two market changes and then BRIEFLY ANSWER questions 3-6 based on your final graph.
• Assume the market events occur at the same time.

1. Draw and completely label the market supply and demand curve for the Generic Soda Industry. Make the demand and supply curve equally elastic. Then read and graph the following 2 Market events.

1. Market Events: Interpret and graph Market Events A and B.

Make the shift for Market Event B greater than the shift for Market event A.

A.) Sugar cane and sugar beet prices have risen by 15 % world-wide as the result of increased use in ethanol production and poor world-wide growing conditions.

B.) As the result of continued economic slow down in the US average consumer incomes have decreased by 25 % in the last year and the trend is expected to continue throughout 2020.

1. Based on your graph briefly explain what happened to Price and Quantity of the product as the result of the 2 market events. Briefly explain why price and quantity changed in the direction depicted in your graph. In your explanation be sure to identify the names of the two variables that caused the change.

1. What does a negative income elasticity for generic soda about the type of good soda is? (2 points)

1. Identify the determinant of price elasticity of demand that would explain why the demand for generic soda is elastic.

Q2: Elasticity calculation and interpretation

Suppose that you are tasked with analyzing the price elasticity of demand for movie theatre tickets in thousands. The demand schedule is given below:

Price	Quantity Demanded (if Income = $50,000)	Quantity Demanded (if Income = $125,000)
$8	42	70
10	34	60
12	26	50
14	18	40
16	10	30

Show your work for partial credit. Use the midpoint method to find the price elasticity of demand for movie tickets when

1. Price falls from $12 to $10 dollars and income is $50,000. Is demand elastic, inelastic or unit elastic? How do you know?

1. Price falls from $12 to $10 dollars and income is $125,000. Is demand elastic, inelastic or unit elastic? How do you know?

1. Relatively speaking, which income group has the more elastic demand? Why might this (think about the determinants of demand elasticity) ? Explain.