Dated 10-21-2023 ECN 201 Thought Question Assignment 2 (4) (2)

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Thought Question Assignment #2 Due Date: Sunday, October 29, 2023, on Brightspace at 11:59 pm. Instructions: This thought question assignment is broken up into 2 parts and is based on 100 points. On Part I of this assignment, you are to answer 1 out of 14 essay questions for 20 points and 1 internet question on housing in the UK, which has 4 questions you must answer, for 20 points. On Part II of this assignment, you are to answer 1 out of 10 graph or math problems for 60 points. Therefore, you are to answer 3 questions total on this assignment for 100 points total. This is an individual assignment, not a group project. You can consult your classmates on this assignment, but you must hand in your OWN answers. On the essay and article questions, please limit your answers to 2 pages each. For graphing purposes, you must use graph paper or you can use Microsoft excel. Answers to this assignment can be either type-written or neatly hand-written. Points will be taken off this assignment if you do NOT label x and y axis on graphs and/or label graphs, you do NOT show your work on math problems and you do NOT use graph paper. Good luck with this assignment! Please email me or stop by office hours if you have any questions regarding this assignment. NOTE: I will NOT accept this thought assignment after the Sunday, October 29, 2023 11:59 pm due date either in person, on Brightspace, or by email. Part I- Short-Essay questions-Answer any one(1) of the six (6) questions for 2 points. 1. As the director of finance for the city’s MetroLink subway system, you are asked for your opinion as to whether fares should be raised to a large increase in fuel prices that the system faces. You have read that the price elasticity of demand for such commuter services is 0.80. Based on this information, what would your recommendation be and why? Would your answer change if the price elasticity of demand is 1.4?

2. Taxi cab fares in most cities are regulated. Several years ago, taxicab drivers in Boston drivers in Boston obtained permission to raise their fares 10 percent, and they anticipated that taxi revenues would increase by about 10 percent as a result. They were disappointed, however. When the commissioner granted the 10 percent increase in taxi fares, taxi revenues only increased by 5 percent. What can you infer about the elasticity of demand for taxicab rides? What were taxicab drivers assuming about the elasticity of demand? 3. Please answer questions 3a and 3b below. 3a. In the market for hand-made guitars, when the price of guitars is $800, annual revenues are $640,000. When the price falls to $700, annual revenues decline to $630,000. Over this range of guitar prices, is the demand for hand-made guitars elastic, unit-elastic, or inelastic? Why? Explain. 3b. Why is the demand for gasoline inelastic, while the demand for Exxon’s gasoline elastic? 4. If a 20% increase in price of photo copying causes a 10% drop in the quantity demanded of photo copying, is the price elasticity of demand for photocopying elastic, unit elastic, or inelastic and WHY? Please explain. 5. Search YouTube for the video titled “Black Friday 2006-Best Buy Line.” Do the early shoppers appear to have elastic or inelastic demand on buying items on Black Friday? Why? Explain your response. 6. Based on the determinants of elasticity of demand as discussed in class and in the Mateer/Coppock textbook, explain what the price elasticity of the demand of the following products would be. Are they elastic, inelastic or unit elastic and why?: (a) Ford Focus car; (b) soap; (c) Verizon cell phones; (d) vegetables and (e) De Beers Diamond Rings. 7. Suppose the income elasticity of demand for renting apartments in Rhode Island is estimated at -1.25. Based on this estimate, are renting apartments in Rhode Island considered to be a normal good or an inferior good? Why? Explain.

8. The accompanying table below Table 1 lists the cross-price elasticities of demand for several goods, where the percent price change for the first good of the pair, and the percent quantity change is measured for the second good. Please answer a, b and c below Table 1 Good Cross-Price Elasticities of demand Air conditioning units and kilowatts of electricity -0.34 Coke and Pepsi +0.63 High-fuel consuming sport- utility vehicles(SUV’s) and gasoline -0.28 McDonald’s burgers and Burger King burgers +0.82 Ford Focus car and Chevy Camero Car 1.54 a. Explain the sign of each of the cross-price elasticities. What does it imply about the relationship between the two goods in question? In other words for each item, are the two goods in question considered to be substitutes or complements? Why? b. Use the information in the table to calculate how a 5% increase in the price of Pepsi affects the demand for Coke. c. Use the information in the table to calculate how a 10% decrease in the price of SUV’s affects the demand for gasoline.

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9. Define cross elasticity of demand. Define substitutes and complements and give an example how two goods can be substitutes and complements to each other. Do substitutes have positive or negative cross elasticity of demand estimates and do complements have negative or positive cross elasticity of demand estimates? Explain why. Describe income elasticity of demand. What is the difference between normal goods and inferior goods? Provide an example of a normal good and an inferior good and how it relates to consumer’s income and the demand for that particular good. 10. Let’s say that you are a politician who promises cheaper gasoline for everyone in the country if you are elected. Once you are elected, you make gas cheaper by imposing a price ceiling that is one full dollar less than the market’s equilibrium price. What would be the reaction of the sellers of gasoline and of the public to your price ceiling law? Would you expect to be reelected in the long run? 11. When the minimum wage rises from $7.25 to $10 in the dishwashing market, the government implements a price floor on the minimum wage at $10. What impacts would this have on the unemployment rate for dishwashing workers? Would there be a surplus or shortage of dish washing workers at the minimum wage price floor of $10? WHY? Explain. 12. The competitive equilibrium rent in the city of Lowell of $1,000 per month. The government decides to enact rent control and to establish a price ceiling of $750.00 per month. In questions a through d below, explain whether rent control is likely to make you personally better off or worse off if you are: a. someone currently renting an apartment in Lowell. b. someone who will be moving to Lowell next year and who intends to rent an apartment. c. a landlord who intends to abide by the rent control law. d. a landlord who intends to ignore the law and illegally charge the highest rent you can for your apartments.

13. Read this article titled “Study Ranks Honolulu Third highest for Unaffordable Housing.” Honolulu is number 3 in the world for the most unaffordable housing market in urban locations. Honolulu is listed only behind Los Angeles and San Diego and is deemed “severely unaffordable.” Where there are significant constraints on the supply of land for residential housing, housing inflation has occurred. Now please answer questions I. and II. below. I. Would the supply of housing in Honolulu be elastic or inelastic? Why? II. Explain how the elasticity of supply plays an important role in influencing how rapidly housing prices in Honolulu rise. 14. The cross-price elasticity of demand between American Eagle Motorcycles and Hollister Motorcycles is 2. Based on this estimate, are American Motorcycles and Hollister Motorcycles considered to be substitutes or complements? Why? Explain.

Internet Question 2 points. You must answer all 4 questions to receive full credit. Please read this newspaper article titled “ Four in ten young adults now can't afford even the cheapest homes in their area - even if they could save a 10% deposit” Here is the link to this article https://www.dailymail.co.uk/money/article- 6250931/Four-ten-young-adults-afford-cheapest-homes-area-researchers finds.html?ns_mchannel=rss&ito=1490&ns_campaign=1490. Please answer the following four questions, questions 1 through 4 below: 1. According to the Institute for Fiscal Studies, why people cannot afford to buy a house in the United Kingdom? Give a detail explanation to this question. 2. Is demand for houses elastic or inelastic? Why? Explain using the four determinants of price elasticity of demand. 3. According the article, what can be done to solve the housing problem in the United Kingdom? 4. As a microeconomist, what policies or recommendations can you suggest to the United Kingdom government to alleviate the housing crisis in the United Kingdom and why?

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Graph and Math and analytical application questions-Answer any one (1) of the following ten (10) questions for 6 points. Note: Please label your graphs and axes on graph problems and please show your work and calculations and your steps on the math problems. If you do NOT label your graphs and axes and/or you do NOT show your work, calculations, and steps on the math problems, then points will be taking off this thought assignment. 1. The demand schedule shows the number of packs of bagels bought in Davis, California, each day at a variety of prices. Price of Bagels($/Pack ) Number of packs purchased per day $6 0 $5 3,000 $4 6,000 $3 9,000 $2 12,000 $1 15,000 $0 18,000 Please answer questions 1a through 1e. 1a. On GRAPH PAPER, graph the demand curve for packs of bagels in Davis. Put Price on the y-axis and put number of packs purchased per day on the x- axis. 1b. Calculate the price of elasticity of demand for bagels when the price of bagels increased from $3 per pack to $4 per pack. 1c. If all bagel shops increased the price of bagels from $3 per pack to $4 per pack, what happens to total revenue and is demand for bagels elastic, inelastic or unit elastic? Why? 1d. Calculate the price of elasticity of demand for bagels when the price of bagels decreased from $3 per pack to $2 per pack. 1e. If all bagel shops decreased the price of bagels from $3 per pack to $2 per pack, what happens to total revenue and is demand for bagels elastic, inelastic or unit elastic? Why?

2. Please consider the demand for computer chips The demand table for computer chips is shown below: Price Quantity Demanded (dollars per chip) (millions of chips per year) $200 65 $250 55 $300 50 $350 40 $400 30 Please answer questions 2a and 2b below: 2a. What happens to total revenue if the price of computer chips decreased from $400 to $350 a chip? Is demand for computer chips, elastic, inelastic or unit elastic? Please show your work and calculations and then explain why demand for computer chips is elastic, inelastic or unit elastic using the price -total revenue test I taught you in class from chapter 4. To increase the computer companies’ revenues, as an economist, should you advise the computer company to continue to lower prices of computer chips? Explain. 2b. What happens to total revenue if the price of computers decreased from $250 to $200 a chip? Is demand for computer chips, elastic, inelastic or unit elastic? Please show your work and calculations and then explain why demand for computer chips is elastic, inelastic or unit elastic using the price -total revenue test I taught you in class from chapter 4. To increase the computer companies’ revenues, as an economist, should you advise the computer company to continue to lower prices of computer chips? Explain. 3. College logo T-Shirts priced at $15 sell at a rate of 25 t-shirts per week, but when the bookstore marks them down to $10, it finds that it can sell 50 t-shirts per week. What is the price elasticity of demand for the logo T-shirts? Is it elastic, inelastic or unit elastic and WHY? Did the t-shirt make a good decision in lowering the price of t-shirts? WHY OR WHY NOT? Explain by calculating total revenue for each price at $15 and $10 and then use the price-total revenue test format to see if t- shirts are elastic, inelastic or unit elastic and WHY.

4. If the price of strawberries falls from $1.50 to $1.00, then the quantity demanded of strawberries rises from 100,000 to 200,000. What is the price elasticity of demand for strawberries? Is demand for strawberries elastic, inelastic or unit elastic? Why? Please show calculations and work and explain your answer. 5. Graph the following situations and decide whether the demand curve for each graph you drew is elastic, inelastic, perfectly elastic or perfect inelastic AND why: a. My cats love Kitty Kat Treats, and I will buy as much as the store has at the current price of $2. But when the price of Kitty Kat Treats increases by even 5 cents, I won’t buy any! b. I will buy 20 bags of Kitty Kat Treats at any price. c. If the price of Kitty Kat Treats rises by 5%, I’ll decrease my quantity demanded by 10%. 6. If Cassandra bought 40 cotton blouses last year when her income was $30,000 and she buys 12 cotton blouses this year when her income is $100,000, then what is her income elasticity of demand? Are cotton blouses income elastic, income inelastic or unit elastic? Why? Interpret what the income elasticity of demand you just calculated means to you. Also, are cotton blouses normal goods or inferior goods? Why? Will the demand curve shift rightward or leftward if cotton blouses are normal goods or inferior goods? 7. At a price of $25,000, producers of midsized automobiles are willing and able to sell 75,000 cars per month. At a price of $35,000, they are willing and able to sell 125,000 cars per month. What is the price elasticity of supply for cars? Is supply for cars considered to be elastic, inelastic or unit elastic? Why? Explain. 8. If the price of a two-liter bottle of Mr. Pibb soda falls from $1.49 to $1.29, then amount of Red Vine pizza rises from 60 boxes to 80 boxes. Calculate the cross-price elasticity of demand between Mr. Pibb Soda and Red Vine pizza. Based on your calculation, are Mr. Pibb Soda and Red Vine pizza considered to be complements or substitutes? Why? Also, as the price of Mr. Pibb soda falls, what happens to the demand curve for Red Vine pizza, did it shift to the right or to the left? Explain.

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9. Use the following table and draw and label the supply and demand curves in the labor market to answer the two questions, 9a and 9b. Make sure you label the y-axis (Wage $) and quantity of labor on the x-axis. Wage Rate Quantity of Labor Demanded Quantity of Labor Supplied $5.00 175,550,000 120,000,000 $5.50 162,000,000 136,485,000 $6.00 153,300,020 153,300,020 $6.50 148,600,579 155,250,000 $7.00 142,050,000 157,132,360 $7.50 139,630,000 159,800,000 $8.00 135,000,000 161,000,785 9a.What is the equilibrium wage rate and equilibrium quantity of labor? Why? 9b. If a price floor is established at a minimum wage rate of $7.50, is there a shortage or a surplus of labor? Why? Explain. 10. If the price of chicken rises by 15%, then the quantity demanded for turkey rises by 10%. Please calculate the cross elasticity of demand for these two products. Based on your calculation, are turkey and chicken complements, substitutes, or unrelated to each other and WHY? Explain and show your work and your calculation.

Dated 10-21-2023 ECN 201 Thought Question Assignment 2 (4) (2)

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