Achieve Chapter 2

In the market for smartphones and Verizon data the two goods are

Complements

In the market for gasoline and sport utility vehicles (SUV's) the two goods are

Compliments

When Sony released the PlayStation 4, it was reported that Sony was taking a loss of $60 on every PS4. However, Sony expected to make this up with sales of PS+ subscriptions and increased royalties from video games. Use the interdependence principal to explain this strategy. The PS+ subscription allows PS4 owners to play their videogames online, receive new games monthly to download at no charge and receive additional special discounts on other items. Therefore PS4 and PS+ subscriptions are ____________________ in consumption. Decreasing the price of PS4 will __________________ the demand for PS+ subscriptions. Sony expects that revenue from recurring PS+ subscriptions will be larger than the loss in revenue from PS4 sales.

Compliments and Increase

A rational buyer will

Keep buying a product until marginal benefit equals price

In the markets for transportation, taking the train and taking a plane are

Substitutes

Andrew, a college student, loves drinking coffee late at night to study for exams. Having no income, he is used to buying cheap, bad tasting coffee such as Bean lightened, that he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year, and he decided that he has had enough bad-tasting coffee. He ends up buying coffee daily from Starbucks, even though it costs significantly more than Bean lightened. Andrew's demand for Starbucks coffee changed as a result of

a change in income

the accompanying table depicts Alex's demand for shoes. _________________________________________________________ Price Pairs of shoes _________________________________________________________ $90 2 _________________________________________________________ $50 5 _________________________________________________________ $10 8 _________________________________________________________ Alex decided to quit her part-time job working at the student union. Will her demand curve shift to the left or to the right?

a shift to the left

the demand curve

is a graphical relationship between price and quantity demanded

Andrew, a college student, loves drinking coffee late at night to study for exams. Having no income, he is used to buying cheap, bad-tasting coffee such as Bean lightened, which he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year, and he decided that he has had enough bad-tasting coffee. He ends up buying coffee daily from Starbucks, even though it costs significantly more than Bean lightened. In economic terms, Starbucks coffee for Andrew is a(n)

normal good

the law of demand refers to

the inverse relationship between price and quantity demanded

Kathy is attending school in Philadelphia. Each year she returns home to visit her family and friends in NYC. Kathy's annual demand curve for train tickets from Philadelphia to New York is provided in the accompanying table. _________________________________________________________ Price # of tickets _________________________________________________________ $600 0 _________________________________________________________ $500 1 _________________________________________________________ $400 2 _________________________________________________________ $300 3 _________________________________________________________ $200 4 _________________________________________________________ $100 5 _________________________________________________________ What is the marginal benefit that Kathy receives from the fifth trip?

$100

Kathy is attending school in Philadelphia. Each year she returns home to visit her family and friends in NYC. Kathy's annual demand curve for train tickets from Philadelphia to New York is provided in the accompanying table. _________________________________________________________ Price # of tickets _________________________________________________________ $600 0 _________________________________________________________ $500 1 _________________________________________________________ $400 2 _________________________________________________________ $300 3 _________________________________________________________ $200 4 _________________________________________________________ $100 5 _________________________________________________________ What is the marginal benefit Kathy receives from the fourth thrip?

$200

Kathy is attending school in Philadelphia. Each year she returns home to visit her family and friends in NYC. Kathy's annual demand curve for train tickets from Philadelphia to New York is provided in the accompanying table. _________________________________________________________ Price # of tickets _________________________________________________________ $600 0 _________________________________________________________ $500 1 _________________________________________________________ $400 2 _________________________________________________________ $300 3 _________________________________________________________ $200 4 _________________________________________________________ $100 5 _________________________________________________________ What is the marginal benefit that Kathy receives from the third trip?

$300

Kathy is attending school in Philadelphia. Each year she returns home to visit her family and friends in NYC. Kathy's annual demand curve for train tickets from Philadelphia to New York is provided in the accompanying table. _________________________________________________________ Price # of tickets _________________________________________________________ $600 0 _________________________________________________________ $500 1 _________________________________________________________ $400 2 _________________________________________________________ $300 3 _________________________________________________________ $200 4 _________________________________________________________ $100 5 _________________________________________________________ What is the marginal benefit that Kathy receives from the second trip?

$400

Kathy is attending school in Philadelphia. Each year she returns home to visit her family and friends in NYC. Kathy's annual demand curve for train tickets from Philadelphia to New York is provided in the accompanying table. _________________________________________________________ Price # of tickets _________________________________________________________ $600 0 _________________________________________________________ $500 1 _________________________________________________________ $400 2 _________________________________________________________ $300 3 _________________________________________________________ $200 4 _________________________________________________________ $100 5 _________________________________________________________ What is the marginal benefit that Kathy receives from the first trip?

$500

Paint and paintbrushes are compliments. If the price of paint rise, we can expect (a) the demand for paintbrushes to decrease (b) the demand for paintbrushes to increase (c) the quantity demanded of paintbrushes to remain unchanged (d) the quantity demanded for paint to increase

(a) the demand for paint brushes to decrease

Consider the following statement: "an increase in the cost of oil will cause the price of a plane ticket to increase. This increase in price will cause a decrease in demand for airline travel and a leftward shift in the demand curve" What is the flaw of this reasoning? (a) a decrease in demand will shift the curve rightwards, not leftward (b) an increase in the price of a ticket will not cause a decrease in demand but rather a decrease in the quantity demanded (c) the cost of oil affects supply and not demand so prices of tickets will remain the same (d) the increase in the cost of oil will cause a decrease in the price of a plane ticket

(b) an increase in the price of ticket will not cause a decrease in demand, but rather a decrease in the quantity demanded

The table contains the monthly demand for soda cans for four students. If these four students make up the entire market, what is the change in the total monthly market demand for soda when the price changes from $3 a can to $2.50 per can? _________________________________________________________ $ p1 p2 p3 p4 _________________________________________________________ $1.50 50 15 8 75 _________________________________________________________ $2 40 11 4 70 _________________________________________________________ $2.50 30 7 2 60 _________________________________________________________ $3.00 20 3 0 40 _________________________________________________________ $3.50 10 0 0 35 _________________________________________________________ (a) the total quantity demanded in the market falls by 26 cans (b) the total quantity demanded in the market rises by 36 cans (c) the total quantity demanded in the market falls by 33 cans (d) the total quantity demanded in the market rises by 23 cans

(b) the total quantity demanded in the market rises by 36 cans

Which of the choices illustrates the law of demand? (a) Joe wants to buy more candy bars at $2 than at $1 (b) Kathy offers for sale more candy bars at $2 than at $1 (c) Sue wants to buy more candy at $1 than at $2 (d) none of the choices

(c) Sue wants to buy more candy bars at $1 than at $2

The relationship between price expectations and demand is (a) negative: when future prices are expected to rise, current demand will fall (b) positive; future prices are generally expected to rise (c) positive; when future prices are expected to rise, current demand will rise (d) negative; when future prices are expected to fall, current demand will rise

(c) positive; when future prices are expected to rise, current demand will rise

a shift in the demand curve can be caused by (a) a change in the cost of production (b) a change in the price of a good (c) a change in the technology used by firms (d) a change in one of the determinants of demand

(d) a change in one of the determinants of demand

Which of the following scenarios represent a shift of the demand curve (select all that apply) (i) Out-N-In, a burger joint with an absurd national following in the US, sells more burgers as the price of chicken increases (ii) After it earns first prize in the spicy category of a ramen tasting competition, college students buy more Lamian brand ramen noodles (iii) In the country of Weskia, shorts designed to sag are no longer in vogue and sales drop off as a result (iv) Last hope, an energy drink company, notices students are desperate during finals and change their buying behavior (v) Nettoyer raises the price for its laundry detergent, which results in less sales and strange scents around college dorm floors (vi) Le Bureau et Chaise offers a one weekend clearance sale on its old model of desks, which causes students to rush to upgrade their dorm furniture

(i), (ii), (iii), (iv)

The demand curve (select all that apply) (i) is a curve that shows the maximum willingness to pay for a product (ii) is a curve that shows the marginal benefit gained from a product (iii) is a curve that shows the production cost of a product (iv) is a curve that shows the relationship between the price of a product and a consumer's willingness to buy at each price

(i), (ii), and (iv)

Which of the following scenarios represent a movement in the demand curve (select all that apply) (i) Out-N-In, a burger joint with an absurd national following in the US, sells more burgers as the price of chicken increases (ii) After it earns first prize in the spicy category of a ramen tasting competition, college students buy more Lamian brand ramen noodles (iii) In the country of Weskia, shorts designed to sag are no longer in vogue and sales drop off as a result (iv) Last hope, an energy drink company, notices students are desperate during finals and change their buying behavior (v) Nettoyer raises the price for its laundry detergent, which results in less sales and strange scents around college dorm floors (vi) Le Bureau et Chaise offers a one weekend clearance sale on its old model of desks, which causes students to rush to upgrade their dorm furniture

(v), (vi)

If the batteries in Samsung smartphones begin to spontaneously combust how will this affect the demand for the Samsung phones?

- the demand curve will shift to the left - Demand will decrease

If Apple increase the price of the newest iPhone by 10% how will this affect the demand for Samsung phones?

- the demand curve will shift to the right - demand will increase

Knowing that gasoline and SUVs are compliments if the price of gasoline rises what way would the demand curve for SUVs shift?

- to the left - decrease

Knowing that smartphones and data plans are compliments for each other, what way will the demand curve for smartphones shift if the price of data plans rise

- to the left - decrease

Knowing that taking a plane and a train are substitutes for each other. If the price of airfare rises, what way will the demand curve for Train travel shift?

- to the right - increase

As part of the marketing team at Delta airlines, you must develop a strategy to increase demand for fights between Kansas City and Detroit. You examine data from previous flights and determine that existing demand for flights between the two cities is as given in the accompanying table _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,200 _________________________________________________________ $300 1,100 _________________________________________________________ $400 1,000 _________________________________________________________ $500 900 _________________________________________________________ $600 800 _________________________________________________________ $700 700 _________________________________________________________ Your team launches a viral advertising campaign that is so successful that all existing consumers increase their willingness to pay by $100 and 50 new customers demand flights at every price. An example is below _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,350 _________________________________________________________ How will this affect the quantity demanded per day at $500 per flight?

1,050

As part of the marketing team at Delta airlines, you must develop a strategy to increase demand for fights between Kansas City and Detroit. You examine data from previous flights and determine that existing demand for flights between the two cities is as given in the accompanying table _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,200 _________________________________________________________ $300 1,100 _________________________________________________________ $400 1,000 _________________________________________________________ $500 900 _________________________________________________________ $600 800 _________________________________________________________ $700 700 _________________________________________________________ Your team launches a viral advertising campaign that is so successful that all existing consumers increase their willingness to pay by $100 and 50 new customers demand flights at every price. An example is below _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,350 _________________________________________________________ How will this affect the quantity demanded per day at $400 per flight?

1,150

the accompanying table depicts Alex's demand for shoes. _________________________________________________________ Price Pairs of shoes _________________________________________________________ $90 2 _________________________________________________________ $50 5 _________________________________________________________ $10 8 _________________________________________________________ At $50 a pair Alex buys ___________ pairs of shoes

5

As part of the marketing team at Delta airlines, you must develop a strategy to increase demand for fights between Kansas City and Detroit. You examine data from previous flights and determine that existing demand for flights between the two cities is as given in the accompanying table _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,200 _________________________________________________________ $300 1,100 _________________________________________________________ $400 1,000 _________________________________________________________ $500 900 _________________________________________________________ $600 800 _________________________________________________________ $700 700 _________________________________________________________ Your team launches a viral advertising campaign that is so successful that all existing consumers increase their willingness to pay by $100 and 50 new customers demand flights at every price. An example is below _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,350 _________________________________________________________ How will this affect the quantity demanded per day at $300 per flight?

1,250

The table shows the monthly individual demand schedules of four students for soda. What is the total monthly market demand for a soda at $2 per can? _________________________________________________________ $ p1 p2 p3 p4 _________________________________________________________ $1.50 50 15 8 75 _________________________________________________________ $2 40 11 4 70 _________________________________________________________ $2.50 30 7 2 60 _________________________________________________________ $3.00 20 3 0 40 _________________________________________________________ $3.50 10 0 0 35 _________________________________________________________

125 cans

You own the only pharmacy in the small town of Jackson city which has 40,000 residence. You would like to get a sense of what the local demand is for seasonal allergy medicine so you can determine how many bottles to keep in stock and what price to charge. You conduct a survey of four residence of Jackson City, asking them about the quantity of allergy medicine that would buy each season at various prices. Their responses are shown in the accompanying table. _________________________________________________________$ r1 r2 r3 r4 _________________________________________________________ $8 8 5 6 9 _________________________________________________________ $10 6 4 5 5 _________________________________________________________ $12 4 3 4 3 _________________________________________________________ $14 2 2 2 1 _________________________________________________________ $18 0 1 1 0 _________________________________________________________ Estimated market quantity demanded at $12

140000

You own the only pharmacy in the small town of Jackson city which has 40,000 residence. You would like to get a sense of what the local demand is for seasonal allergy medicine so you can determine how many bottles to keep in stock and what price to charge. You conduct a survey of four residence of Jackson City, asking them about the quantity of allergy medicine that would buy each season at various prices. Their responses are shown in the accompanying table. _________________________________________________________$ r1 r2 r3 r4 _________________________________________________________ $8 8 5 6 9 _________________________________________________________ $10 6 4 5 5 _________________________________________________________ $12 4 3 4 3 _________________________________________________________ $14 2 2 2 1 _________________________________________________________ $18 0 1 1 0 _________________________________________________________ Estimated market quantity demanded at $18

20000

You own the only pharmacy in the small town of Jackson city which has 40,000 residence. You would like to get a sense of what the local demand is for seasonal allergy medicine so you can determine how many bottles to keep in stock and what price to charge. You conduct a survey of four residence of Jackson City, asking them about the quantity of allergy medicine that would buy each season at various prices. Their responses are shown in the accompanying table. _________________________________________________________$ r1 r2 r3 r4 _________________________________________________________ $8 8 5 6 9 _________________________________________________________ $10 6 4 5 5 _________________________________________________________ $12 4 3 4 3 _________________________________________________________ $14 2 2 2 1 _________________________________________________________ $18 0 1 1 0 _________________________________________________________ Estimated market quantity demanded at $10

200000

You own the only pharmacy in the small town of Jackson city which has 40,000 residence. You would like to get a sense of what the local demand is for seasonal allergy medicine so you can determine how many bottles to keep in stock and what price to charge. You conduct a survey of four residence of Jackson City, asking them about the quantity of allergy medicine that would buy each season at various prices. Their responses are shown in the accompanying table. _________________________________________________________$ r1 r2 r3 r4 _________________________________________________________ $8 8 5 6 9 _________________________________________________________ $10 6 4 5 5 _________________________________________________________ $12 4 3 4 3 _________________________________________________________ $14 2 2 2 1 _________________________________________________________ $18 0 1 1 0 _________________________________________________________ Estimated market quantity demanded at $8

280000

The accompanying table depicts Alex's new demand for shoes after quitting her job _________________________________________________________ Price Pairs of Shoes _________________________________________________________ $90 0 _________________________________________________________ $50 3 _________________________________________________________ $10 6 _________________________________________________________ With this new demand, at $50 a pair Alex buys _________ pairs of shoes

3

Kathy is attending school in Philadelphia. Each year she returns home to visit her family and friends in NYC. Kathy's annual demand curve for train tickets from Philadelphia to New York is provided in the accompanying table. _________________________________________________________ Price # of tickets _________________________________________________________ $600 0 _________________________________________________________ $500 1 _________________________________________________________ $400 2 _________________________________________________________ $300 3 _________________________________________________________ $200 4 _________________________________________________________ $100 5 _________________________________________________________ If the price of a round trip ticket is $230, how many trips should Kathy take?

3 trips

As part of the marketing team at Delta airlines, you must develop a strategy to increase demand for fights between Kansas City and Detroit. You examine data from previous flights and determine that existing demand for flights between the two cities is as given in the accompanying table _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,200 _________________________________________________________ $300 1,100 _________________________________________________________ $400 1,000 _________________________________________________________ $500 900 _________________________________________________________ $600 800 _________________________________________________________ $700 700 _________________________________________________________ Your team launches a viral advertising campaign that is so successful that all existing consumers increase their willingness to pay by $100 and 50 new customers demand flights at every price. An example is below _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,350 _________________________________________________________ How will this affect the quantity demanded per day at $700 per flight?

850

As part of the marketing team at Delta airlines, you must develop a strategy to increase demand for fights between Kansas City and Detroit. You examine data from previous flights and determine that existing demand for flights between the two cities is as given in the accompanying table _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,200 _________________________________________________________ $300 1,100 _________________________________________________________ $400 1,000 _________________________________________________________ $500 900 _________________________________________________________ $600 800 _________________________________________________________ $700 700 _________________________________________________________ Your team launches a viral advertising campaign that is so successful that all existing consumers increase their willingness to pay by $100 and 50 new customers demand flights at every price. An example is below _________________________________________________________ $ per flight Demanded _________________________________________________________ $200 1,350 _________________________________________________________ How will this affect the quantity demanded per day at $600 per flight?

950

Andrew, a college student, loves drinking coffee late at night to study for exams. Having no income, he is used to buying cheap, bad tasting coffee such as Bean lightened, that he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year, and he decided that he has had enough bad-tasting coffee. He ends up buying coffee daily from Starbucks, even though it costs significantly more than Bean lightened. Bean lightened coffee for Andrew is a(n)

Inferior good