Question number 9, 10(a.b,c) ,11, 12

PART II HOW MARKETS WORK b. Calculate your income elasticity of demand as your income increases from $20,000 to $24,000 if 5. Cups of coffee and donuts are complements. Both (i) the price is $12 and (ii) the price is $16. have inelastic demand. A hurricane destroys half the 8. The New York Times reported (Feb. 17, 1996) that coffee bean crop. Use appropriately labeled diagrams subway ridership declined after a fare increase: to answer the following questions. "There were nearly four million fewer riders in a. What happens to the price of coffee beans? December 1995, the first full month after the price b. What happens to the price of a cup of coffee? of a token increased 25 cents to $1.50, than in the What happens to total expenditure on cups of previous December, a 4.3 percent decline." coffee? c. What happens to the price of donuts? What a. Use these data to estimate the price elasticity of happens to total expenditure on donuts? demand for subway rides. b. According to your estimate, what happens 6. The price of aspirin rose sharply last month, while to the Transit Authority's revenue when the the quantity sold remained the same. Five people fare rises? suggest various diagnoses of the phenomenon: c. Why might your estimate of the elasticity be MEREDITH: Demand increased, but supply was unreliable? perfectly inelastic. artW o 9. Two drivers, Walt and Jessie, each drive up to a ALEX: Demand increased, but it was gas station. Before looking at the price, each places perfectly inelastic. an order. Walt says, "I'd like 10 gallons of gas." Demand increased, but supply OH MIRANDA: essie says, "I'd like $10 worth of gas." What is each decreased at the same time. driver's price elasticity of demand? RICHARD: Supply decreased, but demand was 10. Consider public policy aimed at smoking. unit elastic. a. Studies indicate that the price elasticity of demand OWEN: Supply decreased, but demand was for cigarettes is about 0.4. If a pack of cigarettes perfectly inelastic. Latol currently costs $5 and the government wants to reduce smoking by 20 percent, by how much Who could possibly be right? Use graphs to explain should it increase the price? your answer. I deman b. If the government permanently increases the 7. Suppose that your demand schedule for pizza is as price of cigarettes, will the policy have a larger follows: effect on smoking one year from now or five years Quantity Demanded Price Quantity Demanded from now? (income = $20,000) (income = $24,000) c. Studies also find that teenagers have a higher $8 40 pizzas price elasticity of demand than adults. Why might 50 pizzas 10 this be true? 32 12 24 boo soloved er 30 ud (i) 11. You are the curator of a museum. The museum is 14 16 ontorn Imogb running short of funds, so you would like to increase 16 20 8 revenue. Should you increase or decrease the price of 12 YoWith the admission? Explain. a. Use the midpoint method to calculate your price 12. Explain why the following might be true: A drought elasticity of demand as the price of pizza increases around the world raises the total revenue that from $8 to $10 if (i) your income is $20,000 and (ii) your income is $24,000. farmers receive from the sale of grain, but a drought only in Kansas reduces the total revenue that Kansas b flo gabsadad as farmers receive. centselD) Sminnigholded by walwhed the bobnamed attheno