ECON 1000 Study Guide - Quiz Guide: Price War, Rice Krispies, Monster Cereals

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ECON 1000 Full Course Notes

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You charge per website, and currently sell 12 websites per month. Your (cid:272)osts are risi(cid:374)g (cid:894)i(cid:374)(cid:272)ludi(cid:374)g the opportu(cid:374)it(cid:455) (cid:272)ost of (cid:455)our ti(cid:373)e(cid:895), so (cid:455)ou"re thi(cid:374)ki(cid:374)g of raisi(cid:374)g your price to . Price elasticity of demand equals: price elasticity of demand. Along a d curve, p and q move in opposite directions, which would make price elasticity negative. We will drop the minus sign and report all price elasticities as positive numbers: calculating percentage changes, so, we instead use the midpoint method, calculating percentage changes, using the midpoint method, the % change in p equals. % change in p (5000 3000)/4000 = 50% ( )/ = 25% To learn the determinants of price elasticity, we look at a series of examples. In each example: suppose the prices of both goods rise by 20%, the good for which qd falls the most (in percent) has the highest price elasticity of demand.

Related Questions

1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.

a) Construct a table showing the alternative combinations of the two products that are available.

b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?

c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?

2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,

a) what is its total revenue?

b) what is its total cost?

c) what is its profit or loss?

d) will it continue to produce screwdrivers?

e) If this firmâs situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?

3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?

a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity

b)Demand decreases and supply is constant.

c)Supply increases and demand is constant.

d)Demand increases and supply increases.

e)Demand decreases and supply decreases.

4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zekeâs income and the cost of other types of entertainmentâin particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.

a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?

b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?

PRICE	D1	D2	D3
50	10	5	12
40	15	10	25
30	25	15	40

Income 60,000 60,000 80,000

Cost of revenue 10 12 12

5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.

P	Qd(D1)	Qd(D2)	Qd(d3)
20	0	0	1
19	0	1	2
17	0	2	3
16	0	3	4
15	1	4	5
14	2	5	6
13	3	6	7
12	4	7	8
11	5	8	9
10	6	9	10

periwinklemuskrat632

CDC study says cigarette price hike would cut demand

ATLANTA (Reuters) -- A 50 percent increase in cigarette prices would cut overall consumption by 12.5 percent, with even greater declines in smoking among minorities and young adults, federal health experts said Thursday. The Centers for Disease Control and Prevention (CDC) said a statistical analysis of smoking habits since 1976 suggested that raising cigarette prices by 50 percent would result in about 60 billion fewer cigarettes smoked per year

Increasing the price of cigarettes by 50 percent would cut consumption by 7 percent among Caucasian-Americans, 16 percent among African-Americans, and almost 95 percent among Hispanic-Americans, the CDC's mathematical model predicted. "If there is a price increase, there will be much more of a decline in consumption among minority groups than there will be among Caucasian-Americans," said Michael Eriksen, director of the CDC's Office on Smoking and Health. The agency said that for sampling and statistical reasons, the estimated huge reduction in smoking among Hispanic-Americans was subject to greater error than the figures for Caucasian-Americans or African-Americans. The study was based on national cigarette price and sales figures and a National

Health Interview Survey of 355,246 people, almost one-third of them smokers, conducted between 1976 and 1993.

Younger Hispanic-Americans may be more likely to quit

"We really don't think a 50 percent price increase would eliminate smoking in Hispanic-Americans. It might virtually eliminate it in some younger Hispanic-Americans," said Terry Pechacek, a visiting scientist at the Office on Smoking and Health. The CDC said younger smokers would be more likely than older smokers to quit or reduce the amount they smoked because of price increases. The study predicted a 50 percent price increase would cause consumption to decline 29 percent among those aged 18 to 24. Researchers said price increases would also lead to declines in smoking among African-Americans and Hispanic-Americans above age 25. "The tobacco industry has been trying to scare the public, saying that a price increase would be unfair and hit minorities the hardest. In fact, it will actually have the greatest benefit from a public health standpoint in minority communities, particularly in the Hispanic community," Eriksen said.

'Price is only one weapon'

Smokers whose family incomes were at or below average were more than five times as likely as higher-income persons to quit smoking because of price hikes.

Researchers said that even after controlling for income and other factors, Hispanic-American and African-American smokers were more likely than Caucasian-American smokers to quit because of price increases. The study said a 10 percent price increase would prompt one-fourth of Hispanic smokers aged 18 to 24 to quit and reduce consumption among African-Americans aged 18 to 24 by 10 percent. Smoking would be expected to drop less than 1 percent among young Caucasian-Americans, the CDC said. Eriksen said the relative lack of price sensitivity among Caucasian-Americans indicated that "price is only one weapon to reduce smoking." "You need to combine price increases with regulations, with education and prevention programs, and cessation. Anyone element alone will fall short in achieving the type of change that's possible," he said.

a. According to the Center for Disease Control and Prevention (CDC) Study discussed in the CNN article above, what is the overall price elasticity of cigarettes? Based on the estimated elasticity value, is the demand for cigarettes elastic or inelastic? Does this accord with your expectations? Explain why.

b. What are the CDC estimates of price elasticity for Caucasian-Americans, African-Americans, and Hispanic-Americans?

c. Age seems to be a relevant factor for responsiveness to cigarette price increases. What is the estimated price elasticity for young people (aged 18 to 24)? Is this higher or lower than the overall price elasticity calculated in (part a) above? Does this accord with your expectations? Why or why not?

d. The CDC study also presents information for estimates of price elasticity for young Hispanic-Americans, young African-Americans, and young Caucasian-Americans. Calculate the elasticities for each of these three groups, and comment on whether they are elastic or inelastic.

e. Which of the factors that determine elasticity can be identified in the CDC study as being influential in causing differences in the observed elasticity across ethnic groups and age of consumers?

f. The government has taxed the cigarette industry quite extensively over the past decades. According to your analysis thus far, why would the government be so inclined to tax tobacco?

fuchsiagrasshopper6

The Coffee Company Will Raise Drink Prices in October, Even as Other Chains Crowd the Market with Similar (and Cheaper) Products

Starting on October 3, the prices on lattes, cappuccinos, drip coffee, and other drinks will go up 5 cents at company-operated stores in North America. Starbucks is also jacking up the price of its coffee beans by roughly 50 cents per pound, or an average of 3.9 percent. . . .

The timing is certainly odd. For a while now, Starbucks has been struggling with labor disputes. Rivals McDonaldï¿½s, Dunkinï¿½ Donuts, and Canadian restaurant chain Tim Hortonï¿½s are steaming into its turf. . . .

A Confident Company
If Starbucks were really worried about any of these issues, the last thing its senior execs would consider is a price hike. In fact, Starbucksï¿½ dominant market position gives it unique pricing flexibility. Every week, the company succeeds in persuading nearly 40 million people to buy pricey espresso drinks.

ï¿½The company is selling a product that has become part of our daily lives, said Kristine Koerber, an analyst at JMP Securities. ï¿½Raising prices by a nickel is not going to meet any resistance.ï¿½

Company officials say the higher prices are intended to offset higher labor and fuel costs. And while the price increases are small, they underscore just how confident Starbucks remains about its growth prospects and its ability to fend off new competitive threats. Koerber and many other analysts seem to support this optimism. ï¿½Youï¿½re not going to raise prices if you have the competitive or macroeconomic environment going against you,ï¿½ she says.

(a) By how much could unit sales of coffee beans at Starbucks decline after the 2006 price increase while keeping total revenue constant?

(b) If the price elasticity of demand for Starbucks is 0.35, by how much would coffee bean unit sales have fallen?

ECON 1000 Study Guide - Quiz Guide: Price War, Rice Krispies, Monster Cereals

ECON 1000 Full Course Notes

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