Each question needs to be thoroughly answered completely.
1. Explain why excise taxes are more effective at raising tax revenues when applied to products with price inelastic demand versus ones with price elastic demand. Under what conditions would it be possible for tax revenues to decline with higher excise taxes?
2. Discuss each of the pricing strategies below. What conditions are necessary to make each strategy successful in terms of increasing profits? Explain your answer.
a. A local restaurant/bar offers discounted drinks during "happy hour," from 5 to 6 PM on weeknights.
b. The price Company X charges for its ink cartridges is nearly as much as it charges for a printer.
c. Packs of 5 T-shirts cost $10 while an individual T-shirt costs $4.
d. Coupons for specials at a local grocery store can be downloaded from an online site.
e. Computer and appliance manufacturers promote service contracts.
f. Microsoft Office includes several programs in one package.
3. If an auction house is selling products to risk neutral buyers, which of the types of auction would you recommend? If you are a potential buyer, what might your strategy be? Support your answers using economic analysis learned in this course.
4. Incomplete information frequently lowers the average quality of products and services exchanged in markets. This phenomenon, at times called the "lemons problem," explains why the supply of lower-quality products increases relative to higher quality products when sellers cannot communicate the quality of their products to potential buyers. Discuss:
a. Why efficiency in markets with incomplete information present lower than in those with perfect information.
b. How "lemon laws" that allow buyers to return used cars or other products that turn out to be "lemons" help to correct the problem.
c. How certifications and warranties can reduce inefficiencies