TPS6

ECON102 TPS 6 Name: Email ID: @psu.edu Name: Email ID: @psu.edu Name: Email ID: @psu.edu 1 Computers & Bubblegum Explain in a short sentence or two what it means if the cross-price elasticity of computers with respect to bubblegum equals zero : If the cross-price elasticity of computers with respect to bubblegum is zero, it means that changes in the price of bubblegum don't have any effect whatsoever on the quantity demanded of computers. This is an indication that the two goods are not related substitutes or complements in consumption. 2 Chipotle You are a manager at Chipotle downtown and youve been there for years. The menu prices have changed over the years and you notice that when the price of a burrito is $8, you sell 115 burritos per day. When the price of burritos is $7, you sell 125 burritos per day. You know that Chipotles higher management promotes managers based on revenue generated from burrito sales in your store. If you have the option to charge $6.75 or $8.25 for burritos, which will give you a better chance of promotion? Explain why : At $8 per burrito: Revenue = Price x Quantity = Revenue = $8 * 115 = $920 At $7 per burrito: Revenue = Price x Quantity = Revenue = $7 * 125 = $875 At $6.75 per burrito: Revenue = Price x Quantity = Revenue = $6.75 * X = ? At $8.25 per burrito: Revenue = Price x Quantity = Revenue = $8.25 * Y = ? At $6.75, we don't have the exact quantity here we can't calculate the revenue directly. But, we know that at lower prices, demand generally increases (law of demand) Therefore, it's likely that the quantity sold at $6.75 will be higher than at $7, resulting in potentially higher revenue than $875. At $8.25, the revenue will likely be lower than at $8 per burrito, as the increase in price may lead to a decrease in quantity sold (again, law of demand) So, the best option for promotion would likely be $6.75 since it had more potential for more revenues 3 Elasticity Example 1 Give an example of a good with elastic supply and inelastic demand. Tell why you think this is true: An example of such a good is probably life-saving prescription medication, like Epi-pens maybe. Since there is not as much substitutes for them, the demand is more inelastic since a higher price wouldn't change someones mind about purchasing this product if they really need it. Since pharma producers have the capacity to increase production or introduce generic alternatives, they can adjust their production levels in response to changes in price relatively quickly, hence resulting in an elastic supply 4 Multiple Choice Which of the following are fundamentals of consumer choice? (circle all that apply). a) limited income necessitates choice b) consumers try to maximize marginal utility c) goods have substitutes d) consumers obtain all information e) diminishing marginal utility f) dollar prices matter Sreyas Kota sfk5937