Patrick Turner Problem set 2 .pdf
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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.



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