Given the products below and the events that affect them, indicate what happens to demand and/or supply, and the equilibrium price and quantity in a competitive market. Identify the determinant of demand and/or supply that causes the shift. Explain your reasoning fully in each case.
(a) Calculators. More schools require students to buy and use calculators; improved productivity shortens the time it takes to make calculators.
(b) Gasoline. Oil production declines due to a crisis in the Middle East; people take more car vacations and drive more.
(c) New homes. The average incomes fall as the economy moves into recession; the productivity of home construction workers and builders increases.
(d) Tobacco. The government cut its subsidy to tobacco farmers; more people quit smoking.
A gasoline station very near a professional football stadium parks cars on its lot to make money on game days. Last year it charged $4.00 per car and parked 1000 cars. This year it raised the parking price to $5.00 and parked 850 cars. Did the station owner make a good economic decision in raising the parking prices from one year to the next?
Explain fully the rationale of your answer (i.e., calculate elasticity using the midpoint formula and perform the total revenue test).
The following data shows the relationship between price and quantity demanded at four different prices for a product:
P = $11, Qd = 16
P = $9, Qd = 24
P = $7, Qd = 32
P = $5, Qd = 40
Using the midpoint formula, what is the price elasticity of demand between:
(a) $11 and $9
(b) $9 and $7
(c) $7 and $5
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