1.
value:
2.50 points
The demand curve for product X is given by QXd = 380 – 5PX.
a. Find the inverse demand curve.
PX = – QXd
Instructions: Round your answer to the nearest penny (2 decimal places).
b. How much consumer surplus do consumers receive when Px = $55?
$
c. How much consumer surplus do consumers receive when Px = $35?
$
d. In general, what happens to the level of consumer surplus as the price of a good falls?
The level of consumer surplus
as the price of a good falls.
ou are the manager of an organization in America that distributes blood to hospitals in all 50 states and the District of Columbia. A recent report indicates that nearly 50 Americans contract HIV each year through blood transfusions. Although every pint of blood donated in the United States undergoes a battery of nine different tests, existing screening methods can detect only the antibodies produced by the body’s immune system – not foreign agents in the blood. Since it takes weeks or even months for these antibodies to build up in the blood, newly infected HIV donors can pass along the virus through blood that has passed existing screening tests. Happily, researchers have developed a series of new tests aimed at detecting and removing infections from donated blood before it is used in transfusions. The obvious benefit of these tests is the reduced incidence of infection through blood transfusions. The report indicates that the current price of decontaminated blood is $60 per pint. However, if the new screening methods are adopted, the demand and supply for decontaminated blood will change to
Qd = 210 – 1.5P and Qs = 2.5P – 150.
What price do you expect to prevail if the new screening methods are adopted? How many units of blood will be used in the United States? What is the level of consumer and producer surplus? Illustrate your findings in a graph.
Instruction: Round your answers to the nearest whole number.
Price: $
Units of blood:
Consumer surplus: $
Producer surplus: $
You are an assistant to a senator who chairs an ad hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over $15 million on related paperwork and compliance costs. Moreover, depending on the locale, telecom taxes can amount to as much as 25 percent of a consumer’s phone bill. These high tax rates on telecom services have become quite controversial, due to the fact that the deregulation of the telecom industry has led to a highly competitive market. Your best estimates indicate that, based on current tax rates, the monthly market demand for telecommunication services is given by Qd = 250 – 5P and the market supply (including taxes) is QS = 3P – 130 (both in millions), where P is the monthly price of the telecommunication services.
The senator is considering tax reform that would dramatically cut tax rates, leading to a supply function under the new tax policy of QS = 3.2P – 130. How much money per unit would a typical consumer save each month as a result of the proposed legislation?
Instruction: Round your answer to the nearest penny (2 decimal places).
$
G.R. Dry Foods Distributors specializes in the wholesale distribution of dry goods, such as rice and dry beans. The firm’s manager is concerned about an article he read in this morning’s The Wall Street Journal indicating that the incomes of individuals in the lowest income bracket are expected to increase by 10 percent over the next year. While the manager is pleased to see this group of individuals doing well, he is concerned about the impact this will have on G.R. Dry Foods.
What do you think is likely to happen to the price of the products G.R. Dry Foods sells? Why?
The price will increase, because dry beans and rice are inferior goods.
The price will increase, because dry beans and rice are normal goods.
The price will decrease, because dry beans and rice are inferior goods.
The price will decrease, because dry beans and rice are normal goods.
As a result of increased tensions in the Middle East, oil production is down by 1.21 million barrels per day – a 5 percent reduction in the world’s supply of crude oil. Explain the likely impact of this event on the market for gasoline and the market for small cars.
The gasoline market will have:
lower equilibrium prices and higher equilibrium quantity.
lower equilibrium prices and lower equilibrium quantity.
higher equilibrium prices and higher equilibrium quantity.
higher equilibrium prices and lower equilibrium quantity.
The small car market will have:
lower equilibrium prices and lower equilibrium quantity.
higher equilibrium prices and lower equilibrium quantity.
lower equilibrium prices and higher equilibrium quantity.
higher equilibrium prices and higher equilibrium quantity.
Answer the following questions based on the accompanying diagram:
Instructions: All dollar responses should be entered as whole numbers. Include a minus (-) sign for all negative answers.
a. How much would the firm’s revenue change if it lowered price from $12 to $10? Is demand elastic or inelastic in this range?
Revenue change: $
Demand is in this range
b. How much would the firm’s revenue change if it lowered price from $4 to $2? Is demand elastic or inelastic in this range?
Revenue change: $
Demand is in this range
c. What price maximizes the firm’s total revenues? What is the elasticity of demand at this point on the demand curve?
Price that maximizes total revenues: $
Demand is at this point
The demand curve for a product is given by QXd = 1,200 – 3PX – 0.1PZ where Pz = $300.
a. What is the own price elasticity of demand when Px = $140? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price below $140?
Instruction: Round your response to 2 decimal places.
Own price elasticity:
Demand is:
If the firm prices below $140, revenue will:
b. What is the own price elasticity of demand when Px = $240? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price above $240?
Instruction: Round your response to 1 decimal place.
Own price elasticity:
Demand is:
If the firm prices above $240, revenue will:
c. What is the cross-price elasticity of demand between good X and good Z when Px = $140? Are goods X and Z substitutes or complements?
Instruction: Round your response to 2 decimal places.
Cross-price elasticity:
Goods X and Z are:
Suppose the own price elasticity of demand for good X is -3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -4. Determine how much the consumption of this good will change if:
Instructions: Enter your answers as percentages. Include a minus (-) sign for all negative answers.
a. The price of good X decreases by 5 percent.
percent
b. The price of good Y increases by 8 percent.
percent
c. Advertising decreases by 4 percent.
percent
d. Income increases by 4 percent.
percent
Suppose the own price elasticity of demand for good X is -4, its income elasticity is 3, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -4. Determine how much the consumption of this good will change if:
Instructions: Enter your answers as percentages. Include a minus (-) sign for all negative answers.
a. The price of good X decreases by 6 percent.
percent
b. The price of good Y increases by 7 percent.
percent
c. Advertising decreases by 4 percent.
percent
d. Income increases by 3 percent.
percent
Suppose the cross-price elasticity of demand between goods X and Y is -2. How much would the price of good Y have to change in order to change the consumption of good X by 10 percent?
percent
11.
value:
2.50 points
Revenue at a major cellular telephone manufacturer was $2.3 billion for the nine months ending March 2, up 77 percent over revenues for the same period last year. Management attributes the increase in revenues to a 122 percent increase in shipments, despite a 38 percent drop in the average blended selling price of its line of phones.
Given this information, is it surprising that the company’s revenue increased when it decreased the average selling price of its phones?
Yes. Own price elasticity is -3.21, which means demand is elastic and a decrease in price will decrease revenues.
No. Own price elasticity is -3.21, which means demand is elastic and a decrease in price will raise revenues.
Yes. Own price elasticity is -0.31, which means demand is inelastic and a decrease in price will decrease revenues.
No. Own price elasticity is -0.31, which means demand is elastic and a decrease in price will raise revenues.
For the first time in two years, Big G (the cereal division of General Mills) raised cereal prices by 5 percent. If, as a result of this price increase, the volume of all cereal sold by Big G changed by -6 percent, what can you infer about the own price elasticity of demand for Big G cereal?
It is .
Can you predict whether revenues on sales of its Lucky Charms brand increased or decreased?
Yes – it increased.
No – you can’t tell.
Yes – it decreased.
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