two economics questions

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question one: a econ3306 business was considering a price increase and wished to determine the price elasticity of demand (arc elasticity of demand). an economist and a market researcher, jane and you, were hired to study demand. in a controlled experiment, it was determined that at 8 cents, 100 pencils were sold while at 10 cents, 60 pencils were sold, yielding an elasticity of 2.25. however, jane and you were industrial spies, employed by the ef pencil co. and sent to econ3306 to cause as much trouble as possible. so jane and you decided to change the base for their elasticity figure, measuring price in terms of dollars instead of pennies (ie., $0.08 for 8 cents and $0.10 for 10 cents). how will this sabotage affect the results? you must show all your work and explain your answer in detail to get credit.


question two: in an auction, potential buyers compete for a good by submitting bids. jay jones, a social psychologist at tulane, compared ebay auctions in which the same good was sold. he found that, on average, the higher the number of bidders, the higher the sales price. for example, in two auctions of identical ipods, the one with the higher number of bidders brought a higher selling price. according to jones, this explains why smart sellers on ebay set absurdly low opening prices (the lowest price that the seller will accept), such as 1 cent for a new ipod. use the concepts of consumer and producer surplus to explain jone's reasoning. hint. this question is related the concepts of consumer surplus and producer surplus you learned in the principles of microeconomics. these principles are applied in marketing techniques used by businesses.
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