Questions: 1. Submit this assignment by uploading your answers as a WORD document that uses the requested file naming convention.
A1. The demand in Japan for gasoline is inelastic and therefore not very sensitive to market prices. Given that, describe the effect of each of the following on the quantity demanded or the demand for gasoline in Japan. Indicate whether the effect of each is an upward or downward movement along a given demand curve or instead involves an outward or inward shift in the demand curve for gasoline. Explain your answers.
a. A sharp increase in the average price of gasoline in Japan.
b. A sharp rise in the price of automobiles in Japan.
c. A fall in the price of public transportation in Japan.
d. A fall in the price of electic powered cars in Japan.
A2.Suppose the demand for Brand A Ice Cream is characterized by the following point elasticities:
own price elasticity = -0.8
cross-price elasticity with Brand B Ice Cream = +2
income elasticity = +3
Based on the given elasticities, answer the following. Explain your answers.
• a. If a firm in the industry wishes to increase total sales revenue (ignoring cost considerations), will it raise or lower its selling price? Why?
• b. What happens to the demand for Brand A Ice Cream if the price of Brand B Ice Cream rises by 10%? Explain your answer.
• c. What happens to the demand for Brand A Ice Cream if consumer income falls by 4%? Be specific.
• d. Is Brand A Ice Cream a normal or inferior good? Explain.
2. Use the accompanying graph to answer these questions. (L02, L03, L04)
a. Suppose demand is D and supply is SJ. If a price ceiling of $6 is imposed, what are the resulting shortage and full economic price?
b. Suppose demand is D and supply is s0. Ifa price support of $12 is imposed, what is the resulting surplus? What is the cost to the government of purchasing any and all unsold units?
c. Suppose demand is D and supply is SJ so that the equilibrium price is $ 10. If an excise tax of $6 is imposed on this product, what happens to the equilibrium price paid by consumers? The price received by producers? The number of units sold?
d. Calculate the level of consumer and producer surplus when demand and supply are given by D and SJ respectively.
e. Suppose demand is D and supply is sD.Would a price ceiling of $2 benefit any consumers? Explain.
3. In a recent speech, the governor of your state announced: "One of the biggest causes of juvenile delinquency in this state is the high rate of unemployment among 16 to 19 year olds. The low wages offered by employers in the state have given fewer teenagers the incentive to find summer employment. Instead of working all summer, the way we used to, today's teenagers slack off and cause trouble. To address this problem, I propose to raise the state's minimum wage by $1.50 per hour. This will give teens the proper incentive to go out and find meaningful employment when they are not in school." Evaluate the governor's plan to reduce juvenile delinquency. (L03, L04, L05)
4. Suppose the own price elasticity of demand for good Xis-3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Yis-4. Determine how much the consumption of this good will change if: (LO 1)
a. The price of good X decreases by 5 percent.
b. The price of good Yincreases by 8 percent.
c. Advertising decreases by 4 percent.
d. Income increases by 4 percent.
5. For the first time in two years, Big G (the cereal division of General Mills) raised cereal prices by 4 percent. If, as a result of this price increase, the volume of all cereal sold by Big G dropped by S percent, what can you infer about the own price elasticity of demand for Big G cereal? Can you predict whether revenues on sales of its Lucky Charms brand increased or decreased? Explain. (LOI, L03)
6. IfStarbucks's marketing department estimates the income elasticity of demand for its coffee to be 2.6, how will the prospect of an economic boom (expected to increase consumers' incomes by 6 percent over the next year) impact the quantity of coffee Starbucks expects to sell? (LOI)