1. 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 thequantity 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.
2. 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.