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microeconomics
Microeconomics 9th Edition David Colander - Solutions
5. Which has greater elasticity: a supply curve that goes through the origin with slope of 1 or a supply curve that goes through the origin with slope of 4? (LO6-1)
4. One football season Domino’s Pizza, a corporate sponsor of the Washington Redskins (a football team), offered to reduce the price of its medium-size pizza by $1 for every touchdown scored by the Redskins during the previous week. Until that year, the Redskins weren’t scoring many touchdowns.
3. When tolls on the Dulles Airport Greenway were reduced from $1.75 to $1.00, traffic increased from 10,000 to 26,000 trips a day. Assuming all changes in quantity were due to the change in price, what is the price elasticity of demand for the Dulles Airport Greenway? (LO6-1)
2. A firm has just increased its price by 5 percent over last year’s price, and it found that quantity sold remained the same. (LO6-1)a. The firm comes to you and wants to know its price elasticity of demand.b. How would you calculate it?c. What additional information would you search for before
1. Determine the price elasticity of demand if, in response to an increase in price of 10 percent, quantity demanded decreases by 20 percent. Is demand elastic or inelastic? (LO6-1)
Q-10 A firm faces an elastic demand for its product. It has come to an economist to advise it on whether to lower its price. The answer she gives is: Maybe. Why is this the right answer?
Q-9 Label each of the following goods as a luxury, necessity or inferior good. Elasticity is given for each.a. Dental services: 1.6b. Beer: 0.8c. Farm goods: -0.6
Q-8 If a good’s consumption increases with an increase in income, what type of good would you call it?
Q-7 Why might museums offer different admission prices for youth, students, adults, and seniors?
Q-6 If demand is inelastic and a firm raises price, what happens to total revenue?
Q-5 What are four important factors affecting the number of substitutes a good has?
Q-4 Your study partner, Nicole, has just stated that a straight-line demand curve is inelastic. How do you respond?
Q-3 What is the approximate elasticity between points A and B on the graph below? Price 432 2 1 A B 2 4 6 8 10 12 14 16 Quantity
Q-2 If price elasticity of demand is greater than 1, what would we call demand: elastic or inelastic?
Q-1 If when price rises by 4 percent, quantity supplied rises by 8 percent, what is the price elasticity of supply?
LO6-5 Explain how the concept of elasticity makes supply and demand analysis more useful.
LO6-4 Define and calculate income elasticity and cross-price elasticity of demand.
LO6-3 Relate price elasticity of demand to total revenue.
LO6-2 Explain the importance of substitution in determining elasticity of supply and demand.
LO6-1 Use elasticity to describe the responsiveness of quantities to changes in price and distinguish five elasticity terms.
8. Apartments in New York City are often hard to find. One of the major reasons is rent control.a. Demonstrate graphically how rent controls could make apartments hard to find.b. Often one can get an apartment if one makes a side payment to the current tenant. Can you explain why?c. What would be
7. Since 1981, the U.S. government has supported the U.S.price of sugar by limiting sugar imports into the United States. Restricting imports is effective because the United States consumes more sugar than it produces.a. Using supply/demand analysis, demonstrate how import restrictions increase the
2. About 10,000 tickets for the 2005 Men’s Final Four college basketball games at the St. Louis Edward Jones Dome were to be sold in a lottery system for between $110 and $130 apiece. Typically applications exceed available tickets by 100,000. A year before the game, scalpers were already
17. You’re given the following supply and demand tables: (LO5-5)a. What is equilibrium price and quantity in a market system with no interferences?b. If this were a third-party-payer market where the consumer pays $2, what is the quantity demanded?What is the price charged by the seller?c. What
14. Quotas are quantity restrictions on imported goods.Demonstrate the effect of a quota on the price of imported goods. (LO5-4)
13. Draw the supply and demand curves associated with the tables below. (LO5-3)a. What is equilibrium price and quantity?b. What is equilibrium price and quantity with a $.75 per unit tax levied on suppliers? Demonstrate your answer graphically.c. How does your answer change to b if the tax were
16. In what ways is the market for public post-secondary education an example of a third-party-payer market?What’s the impact of this on total educational expenditures? (LO5-5)
12. Taxes can be levied on consumers or producers. (LO5-3)a. Demonstrate the effect of a $4 per unit tax on suppliers on equilibrium price and quantity.b. Demonstrate the effect of a $4 per unit tax on consumers on equilibrium price and quantity.c. How does the impact on equilibrium prices (paid by
11. Graphically show the effects of a minimum wage on the number of unemployed. (LO5-2)
10. Demonstrate graphically the effect of a price floor. (LO5-2)
9. Demonstrate graphically why rent controls might increase the total payment that new renters pay for an apartment. (LO5-2)
8. Demonstrate graphically the effect of an effective price ceiling. (LO5-2)
7. In 2008 a drought in Australia’s rice-growing regions raised the world price of rice from 12 to 24 cents a pound.Demonstrate graphically the effect of the drought on equilibrium price and quantity in the world rice market. (LO5-1)
6. Kennesaw University Professor Frank A. Adams III and Auburn University Professors A. H. Barnett and David L. Kaserman recently estimated the effect of legalizing the sale of cadaverous organs, which currently are in shortage at zero price. What are the effects of the following two possibilities
5. In 2011 oil production in Libya was interrupted by political unrest. At the same time, the demand for oil by China continued to rise. (LO5-1)a. Demonstrate the impact on the quantity of oil bought and sold.b. Oil production in Libya returned to its original levels by the end of 2012. What was
4. Demonstrate the effect on price and quantity of each of the following events: (LO5-1)a. In a recent popularity test, Elmo topped Cookie Monster in popularity (this represents a trend in children’s tastes). Market: cookies.b. The Atkins Diet that limits carbohydrates was reported to be very
3. The technology is now developing so that road use can be priced by computer. A computer in the surface of the road picks up a signal from your car and automatically charges you for the use of the road. How would this affect bottlenecks and rush-hour congestion? (LO5-1)
2. Say that equilibrium price fell and quantity remained constant. What would you say was the most likely cause? (LO5-1)
1. Say that the equilibrium price and quantity both rose. What would you say was the most likely cause? (LO5-1)
Q-10 If the cost of textbooks were included in tuition, what would likely happen to their prices? Why?
Q-9 What is the effect of the quantity restrictions, Q R , shown in the graph below, on equilibrium price and quantity? Price QR Quantity S D
Q-8 Your study partner, Umar, has just stated that a tax on demanders of $2 per unit will raise the equilibrium price from $4 to$6. How do you respond?
Q-7 What is the effect of the price floor, P f , shown in the graph below, on price and quantity? Price P Supply Quantity Demand
Q-6 What is the effect of the price ceiling, P c , shown in the graph below on price and quantity? Price P Supply Quantity Demand
Q-5 What is the effect of the price ceiling, P c , shown in the graph below on price and quantity? Price Quantity Demand Supply
Q-4 If price and quantity both fell, what would you say was the most likely cause?
Q-3 If both demand and supply shift in to the left, what happens to price and quantity?
Q-1 True or false? If supply rises, price will rise.
LO5-5 Explain the effect of a third-party payer system on equilibrium price and quantity.
LO5-4 Explain the effect of quantity restrictions on a market.
LO5-3 Explain the effect of excise taxes and tariffs on a market.
LO5-2 Demonstrate the effect of a price ceiling and a price floor on a market.
LO5-1 Apply the supply and demand model to real-world events.
5. Why is a supply/demand analysis that includes only economic forces likely to be incomplete?
4. What would be the effect of a 75 percent tax on lawsuit punitive awards that was proposed by California Governor Arnold Schwarzenegger in 2004 on:a. The number of punitive awards. Demonstrate your answer using supply and demand curves.b. The number of pretrial settlements.
3. In 1994, the U.S. postal service put a picture of rodeo rider Ben Pickett, not the rodeo star Bill Pickett, whom it meant to honor, on a stamp. It printed 150,000 sheets.Recognizing its error, it recalled the stamp, but it found that 183 sheets had already been sold.a. What would the recall
2. In the early 2000s, the demand for housing increased substantially as low interest rates increased the number of people who could afford homes.a. What was the likely effect of this on housing prices?Demonstrate graphically.b. In 2005, mortgage rates began increasing. What was the likely effect
1. Oftentimes, to be considered for a job, you have to know someone in the firm. What does this observation tell you about the wage paid for that job?
6. Some economists believe that imposing international labor standards would cost jobs. In support of this argument, one economist said, “Either you believe labor demand curves are downward sloping, or you don’t.” Of course, not to believe that demand curves are negatively sloped would be
5. Do you think consumers make purchasing decisions based on general rules of thumb instead of price?a. Why would consumers do this?b. What implication might this have for the conclusions drawn about markets? (Post-Keynesian)
4. Knowledge is derived from a tautology when something is true because you assume it is true. In this chapter, you have learned the conditions under which supply and demand explain outcomes. Yet, as your text author cautions, these conditions may not hold. How can you be sure if they ever hold?
3. Economics is often referred to as the study of choice.a. In U.S. history, have men and women been equally free to choose the amount of education they receive even within the same family?b. What other areas can you see where men and women have not been equally free to choose?c. If you agree that
2. In the late 19th century, Washington Gladden said, “He who battles for the Christianization of society, will find their strongest foe in the field of economics. Economics is indeed the dismal science because of the selfishness of its maxims and the inhumanity of its conclusions.”a. Evaluate
1. In a centrally planned economy, how might central planners estimate supply or demand? (Austrian)
24. State whether the “other things constant” is likely to hold in the following supply/demand analyses: (LO4-3)a. The impact of an increase in the demand for pencils on the price of pencils.b. The impact of an increase in the supply of labor on the quantity of labor demanded.c. The impact of
23. In which of the following three markets are there likely to be the greatest feedback effects: market for housing, market for wheat, market for manufactured goods? (LO4-4)
22. Define the fallacy of composition. How does it affect the supply/demand model? (LO4-4)
21. In most developing countries, there are long lines of taxis at airports, and these taxis often wait two or three hours.What does this tell you about the price in that market?Demonstrate with supply and demand analysis. (LO4-3)
20. Assume that Argentina imposes a 20 percent tax on natural gas exports. (LO4-3)a. Demonstrate the likely effect of that tax on gas exports using supply and demand curves.b. What does it likely do to the price of natural gas in Argentina?
19. In the United States, say gasoline costs consumers about$2.50 per gallon. In Italy, say it costs consumers about$6 per gallon. What effect does this price differential likely have on: (LO4-3)a. The size of cars in the United States and in Italy?b. The use of public transportation in the United
18. You’re a commodity trader and you’ve just heard a report that the winter wheat harvest will be 2 billion bushels, a 40 percent jump, rather than an expected 30 percent jump. (LO4-3)a. What would you expect would happen to wheat prices?b. Demonstrate graphically the effect you suggested in
17. Draw hypothetical supply and demand curves for tea. Show how the equilibrium price and quantity will be affected by each of the following occurrences: (LO4-3)a. Bad weather wreaks havoc with the tea crop.b. A medical report implying tea is bad for your health is published.c. A technological
16. OPEC announces it will increase oil production by 20 percent. What is the effect on the price of oil?Demonstrate your answer graphically. (LO4-3)
15. In a flood, usable water supplies ironically tend to decline because the pumps and water lines are damaged. What will a flood likely do to prices of bottled water? (LO4-3)
14. Explain what a sudden popularity of “Economics Professor” brand casual wear would likely do to prices of that brand. (LO4-3)
13. What is the expected impact of increased security measures imposed by the federal government on airlines fares and volume of travel? Demonstrate your answer graphically. (LO4-3)
12. Why does sales volume rise during weeks when states suspend taxes on sales by retailers? Demonstrate your answer graphically assuming that the retailer pays the tax. (LO4-3)
11. Why does the price of airline tickets rise during the summer months? Demonstrate your answer graphically. (LO4-3)
10. It has just been reported that eating red meat is bad for your health. Using supply and demand curves, demonstrate the report’s likely effect on the equilibrium price and quantity of steak sold in the market. (LO4-3)
9. You’re given the following demand and supply tables: (LO4-3)a. Draw the market demand and market supply curves.b. What is excess supply/demand at price $30? Price $60?c. Label equilibrium price and quantity. P $30 40 50 15 10 60 52505 D Demand D 5300 D3 10 7 5 0 Supply P S S S3 $30 0 4 11 40 0
8. Derive the market supply curve from the following two individual supply curves. (LO4-2) $10 Co 8 S $2 $1 P6 4 2 2 4 6 8 10 Q
7. List four shift factors of supply and explain how each affects supply. (LO4-2)
6. Mary has just stated that normally, as price rises, supply will increase. Her teacher grimaces. Why? (LO4-2)
5. State the law of supply. Why is price directly related to quantity supplied? (LO4-2)
4. Distinguish the effect of a shift factor of demand on the demand curve from the effect of a change in price on the demand curve. (LO4-1)
3. List four shift factors of demand and explain how each affects demand. (LO4-1)
2. You’re given the following individual demand tables for comic books. (LO4-1)a. Determine the market demand table.b. Graph the individual and market demand curves.c. If the current market price is $4, what’s total market demand? What happens to total market demand if price rises to $8?d. Say
1. State the law of demand. Why is price inversely related to quantity demanded? (LO4-1)
Q-10 Why is the fallacy of composition relevant for macroeconomic issues?
Q-9 When determining the effect of a shift factor on price and quantity, in which of the following markets could you likely assume that other things will remain constant?1. Market for eggs.2. Labor market.3. World oil market.4. Market for luxury boats.
Q-8 Demonstrate graphically the likely effect of an increase in the price of gas on the equilibrium quantity and price of hybrid cars.
Q-7 Demonstrate graphically the effect of a heavy frost in Florida on the equilibrium quantity and price of oranges.
Q-6 Explain the effect of each of the following on the supply of romance novels:1. The price of paper rises by 20 percent.2. Government provides a 10 percent subsidy to book producers.
Q-5 Assume that the price of gasoline rises, causing the demand for hybrid cars to rise. As a result, the price of hybrid cars rises. This makes _______ rise. Should the missing words be the supply or the quantity supplied ?
Q-4 Derive a market demand curve from the following two individual demand curves: Price $10 9 8 co 76543210 D D 1 2 3 4 5 6 7 8 9 10 Quantity
Q-3 Explain the effect of each of the following on the demand for new computers:1. The price of computers falls by 30 percent.2. Total income in the economy rises.
Q-2 The uncertainty caused by the terrorist attacks of September 11, 2001, made consumers reluctant to spend on luxury items. This reduced ________. Should the missing words be demand for luxury goods or quantity of luxury goods demanded ?
Q-1 Why does the demand curve slope downward?
LO4-4 Discuss the limitations of demand and supply analysis.
LO4-3 Explain how the law of demand and the law of supply interact to bring about equilibrium.
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