Question #2

For each of the following, do you think the business is a price-taking producer? Explain your Answers.

a) A cappuccino cafe in a university town where there are dozens of very similar cappuccino cafes.

b) The makers of Pepsi-Cola.

c) One of many sellers of zucchini at a local farmers' market.

Question #3

Assume you own an educational company and offer several educational services. For one year, you change price for different services and record information about how many people buy your service. You thus gather information about the elasticity of demand. If you wish to raise as much as revenue as possible from your company, where will you decide to change the price: for the services that have inelastic demand or elastic or unit elastic? Explain your answer.

Question #4

Your Company operates in a perfectly competitive market. You have been told that advertising can help you increase your sale in the short run. Would you create an aggressive advertising campaign for your product?

Question #5

On November 2018, there was a huge debate in Spain over who should pay the mortgage creation tax. Should the buyers (consumers) or the sellers of the mortgage (the banks) pay the tax.

During early 2018, the civil division of supreme Court clearly ruled that the tax on mortgages should be paid by consumers and not banks. However, on the 18th of the October the administrative division pronounced the other way, that banks should pay.

What is your recommendation to Spanish people? What do you think about their debate? does the incidence of the tax depends on who pays the tax?

Question #6

Small mom and pop firms like inner city grocery stores, sometime exist even though they do not earn economic profits. How can you explain this?

Question #7

What would the gasoline price elasticity of supply mean to UPS or FedEX?

Question #8

Consider demand for ice cream if the price for a substitute good increases and the price for a complement good increases, can you tell for sure what will happen to the demand for ice cream? Explain your answer.