ECON ASSIGN 2

Consider the market for large stuffed unicorns. At the initial price of $10, the quantity demanded is 100. A bad stuffing harvest leads to an increase in the price of stuffed unicorns to $20. In response to this price rise, the quantity demanded falls to 90. Use the midpoint formula to calculate the price elasticity of demand.

-0.158

The price of oil has increased 10% over a period of several years, and the quantity demanded falls by 5%. What is the long-run price elasticity of demand for oil?

-0.5

When the price of ice cream cones is $3, Lilly buys 10 ice cream cones per month. If the price rises to $5, Lilly buys only 4 ice cream cones per month. Using the midpoint rule, calculate the price elasticity of Lilly's demand.

-12/7

The price of comic books is 20$ for a package of 10 comics. At this price, Little Tommy "reads all the darn time" Johansen uses his allowance money to buy 15 packages of comics over the summer. A newly available deposit of squid ink is located off the coast of Indonesia, which comic book printers begin using as a substitute for ink from India. Because of this lower cost of comic book production, comic book printers compete to lower the price of comic books to $10 per package of 10 comics. At this lower price, Tommy buys 25 packages over a summer. Use the midpoint formula to calculate Tommy's price elasticity of demand.

-3/4

The charts below plot oil prices and airline fares. Notice how these two sets of data move together. When the price of oil increases, the price of an airline ticket tends to also increases. Be careful not to confuse correlation with causation though. You might guess that because oil-based fuels are a major cost incurred by airlines, that these data move together because high costs necessitate higher prices. But remember that airlines cannot raise prices above what consumers are willing to pay without driving away customers, lowering their sales. The other direction of causation makes just as much sense: when people want to travel by air more, they buy more airline tickets, bidding up the price of airline tickets. To meet that higher demand, airlines increase the number of flights they offer, and purchase more oil to fuel the jets. As a major buyer in the oil market, airlines impact the price of oil. Oil prices fell d

1.12

The minimum wage is a price control, specifically a minimum price or "price floor". The minimum wage is paid to low-skilled entry-level workers. Industries that pay their workers the minimum wage, such as restaurants for example, tend to have many workers to choose from. What effect do you think the minimum wage has on producer and consumer surplus?

???

Why might the method described in question 24 NOT be the best way to calculate the cross price elasticity of demand for oil on airline tickets?

???

Immigration is a fact of life in the United States. The image below plots border crossings over time, and shows a dramatic increase in recent years. This will lead to a big boost in the labor supply. Considering your own career prospects, what field o work would you rather be in, given the increase in immigration? (It is high rn)

A field where the demand for your kind of labor is elastic.

In what kind of market, would producers have a greater incentive to lobby for tax cuts (or tax increases on their competitors)?

A market with inelastic supply

What is the difference between the incidence of a tax and the burden of a tax?

A tax burden includes direct payment from specific individuals, businesses, and other tax payers to the government directly. In comparison, the incidence of a tax is how the tax is divided between buyers and sellers which is determined by the supply and demand of an object.

How is the increasing price of bronze an incentive?

Consumers will save more money by conserving bronze. Consumers who switch to substitutes can save money. Entrepreneurs can profit by developing new alternatives to bronze. Entrepreneurs can profit by developing ways to recycle bronze.

In a market with elastic demand, total revenue rises if price rises

False

Thrift stores that sell used clothing make the market for clothes more inelastic.

False

After the invention of nuclear power plants, will the demand curve for coal power plants be more elastic or more inelastic?

More elastic

Circa 1200 BCE, a decreasing supply of tin due to wars and the breakdown of trade led to a drastic increase in the price of bronze in the Middle East and Greece (tin being necessary for its production). It is around this time that blacksmiths developed iron- and steel-making techniques (as substitutes for bronze). What does the increasing price of bronze signal?

It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve it more or seek substitutes.

A lot of American action movies are quests to eliminate a villain. If in real life villains are elastically supplied (like guns for buyback programs), should we care whether the hero captures a particular villain?

No

Some people with diabetes absolutely need to take insulin on a regular basis to survive. Pharmaceutical companies that make insulin could find a lot of other ways to make some money. If the U.S. government imposes a tax on insulin producers of $10 per cubic centimeter of insulin, payable every month to the U.S. Treasury, who will bear most of the incidence of the tax?

People with diabetes

Suppose you learned that growing political instability in Chile (the largest producer of copper) will greatly reduce the productivity of its mines in two years. Ignoring all other factors, which curve (demand or supply) will shift which way in the market for copper two years from now?

Supply curve will decrease, that is, a shift to the left (up).

Suppose that drug addicts pay for their addiction by stealing: So the higher the total revenue of the illegal drug industry, the higher the amount of theft. If a government crackdown on drug suppliers leads to a higher price of drugs, what will happen to the amount of stealing if the demand for drugs is inelastic?

The overall amount of stealing will increase

If two individuals make an exchange with each other, we can conclude that the trade was mutually beneficial to both parties.

True

In a market with inelastic demand, total revenue rises if price rises

True

Suppose that Maria is willing to pay $40 for a haircut, and her stylist Juan is willing to accept as little as $25 for a haircut. If a previous $5 tax increases to $20, will the haircut transaction still happen?

Yes

Fill in the blanks: When the government taxes an activity, resources such as labor, machines, and bank lending will tend to gravitate _________the activity that is taxed and will tend to gravitate ________ activity that is not taxed.

away from; toward

In 1935, Little Tommy "reads all the darn time" Johansen's allowance doubled! Wow. Suppose that Tommy stops buying so many comic books. Specifically, Tommy reduces his purchases of comic books from 15 to 10 packages. Instead of comic books, Tommy starts buying the great works of economics by authors such as Adam Smith, F.A. Hayek, David Ricardo, Carl Menger, Alfred Marshall, Paul Samuelson, Gerard Debreu, and J.M. Keynes. Are comic books a normal or inferior good to Tommy? Use the midpoint formula to calculate Tommy's income elasticity of demand.

inferior, -0.33

Suppose a price control is set in a market that is below the equilibrium price. What condition must be satisfied in order for total surplus to be unaffected by the price control? Hint: this condition would make it so that surplus is transferred from producers to consumers without any deadweight loss.

perfectly inelastic supply