Patrick Turner Problem set 2 .pdf

1.

2.
A. A​ ​fall​ ​in​ ​the​ ​price​ ​of​ ​flour​ ​would​ ​explain​ ​this​ ​phenomenon​ ​as​ ​it​ ​enables​ ​more​ ​bagels​ ​to​ ​be
produced​ ​at​ ​any​ ​given​ ​price​ ​and​ ​drives​ ​up​ ​the​ ​demand​ ​for​ ​cream​ ​cheese​ ​since​ ​they​ ​are
complements​ ​and​ ​more​ ​bagels​ ​are​ ​being​ ​produced​ ​and​ ​sold.
B. A​ ​rise​ ​in​ ​the​ ​the​ ​price​ ​of​ ​milk​ ​would​ ​be​ ​to​ ​blame​ ​as​ ​it​ ​would​ ​reduce​ ​the​ ​supply​ ​of​ ​cream
cheese,​ ​thus​ ​increasing​ ​the​ ​price,​ ​and​ ​reduce​ ​the​ ​demand​ ​for​ ​bagels​ ​as​ ​cream​ ​cheese
is​ ​now​ ​less​ ​prevalent.

3.
A. The​ ​program​ ​will​ ​lower​ ​the​ ​supply​ ​of​ ​used​ ​cars​ ​as​ ​those​ ​turned​ ​in​ ​are​ ​scrapped​ ​and​ ​also
lower​ ​the​ ​demand​ ​for​ ​used​ ​cars​ ​as​ ​the​ ​program​ ​incentivizes​ ​the​ ​purchase​ ​of​ ​new​ ​fuel
efficient​ ​cars.
B. There​ ​is​ ​an​ ​unambiguous​ ​change​ ​in​ ​quantity​ ​as​ ​it​ ​will​ ​fall.​ ​There​ ​is​ ​an​ ​ambiguous
change​ ​in​ ​price.

C. It​ ​serves​ ​to​ ​indicate​ ​the​ ​supply​ ​shift​ ​was​ ​greater​ ​than​ ​that​ ​of​ ​the​ ​demand​ ​shift.
4.
A. i.​ ​Price​ ​elasticity​ ​of​ ​demand=​ ​1
ii.​ ​Price​ ​elasticity​ ​of​ ​demand=​ ​.474
​ ​ ​ ​ ​ ​ ​B.​ ​ ​i.​ ​Income​ ​elasticity​ ​of​ ​demand=​ ​1.269
Ii.​ ​Income​ ​elasticity​ ​of​ ​demand=​ ​2.2
5.
A. Price​ ​elasticity​ ​of​ ​demand​ ​is​ ​estimated​ ​to​ ​be=​ ​.237
B. Revenue​ ​will​ ​increase​ ​as​ ​subways​ ​transit​ ​is​ ​a​ ​relatively​ ​inelastic​ ​good.
C. Not​ ​enough​ ​time​ ​has​ ​passed​ ​since​ ​the​ ​institution​ ​of​ ​the​ ​price​ ​change​ ​for​ ​the​ ​market​ ​to
properly​ ​adapt.
6.
An​ ​unambiguous​ ​decrease​ ​in​ ​the​ ​demand​ ​of​ ​good​ ​X​ ​would​ ​occur​ ​as​ ​since​ ​cross-price
elasticity​ ​of​ ​good​ ​X​ ​with​ ​respect​ ​to​ ​good​ ​Y​ ​is​ ​greater​ ​than​ ​zero​ ​they​ ​are​ ​substitutes,​ ​meaning​ ​a
drop​ ​in​ ​good​ ​Y’s​ ​price​ ​would​ ​decrease​ ​the​ ​demand​ ​for​ ​good​ ​X,​ ​and​ ​good​ ​X​ ​is​ ​an​ ​inferior​ ​good
so​ ​an​ ​increase​ ​in​ ​income​ ​would​ ​decrease​ ​the​ ​demand​ ​for​ ​good​ ​X.
7.
A. The​ ​government​ ​should​ ​increase​ ​the​ ​price​ ​$2.50

B. 5​ ​years​ ​from​ ​now​ ​as​ ​the​ ​market​ ​will​ ​have​ ​more​ ​time​ ​to​ ​adjust​ ​to​ ​the​ ​stimulus
C. They​ ​have​ ​a​ ​smaller​ ​income​ ​and​ ​thus​ ​each​ ​dollar​ ​matters​ ​more​ ​to​ ​them.
8.
You​ ​should​ ​increase​ ​the​ ​price​ ​of​ ​admission​ ​if​ ​a​ ​museum's​ ​attendance​ ​is​ ​relatively
inelastic​ ​and​ ​decrease​ ​the​ ​price​ ​of​ ​admission​ ​if​ ​the​ ​attendance​ ​is​ ​elastic.​ ​If​ ​attendance​ ​is
inelastic​ ​the​ ​price​ ​raise​ ​on​ ​each​ ​ticket​ ​will​ ​not​ ​drive​ ​away​ ​a​ ​substantial​ ​enough​ ​consumer​ ​base
to​ ​cause​ ​revenue​ ​loss​ ​and​ ​instead​ ​will​ ​generate​ ​gain.​ ​If​ ​attendance​ ​is​ ​elastic​ ​then​ ​a​ ​small​ ​drop
in​ ​price​ ​will​ ​draw​ ​in​ ​a​ ​much​ ​larger​ ​amount​ ​of​ ​consumers​ ​and​ ​thus​ ​be​ ​the​ ​correct​ ​course​ ​of
action.