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4. Min King, the world traveler, says if the airlines want to attract more passengers, they should lower fares for business travelers as well as for vacationers. She believes both groups will respond equally to a price decrease

4. Min King, the world traveler, says if the airlines want to attract more passengers, they should lower fares for business travelers as well as for vacationers. She believes both groups will respond equally to a price decrease

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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APPLYING ELASTICITY TO THE REAL WORLD Instructions: Each of the following stories contains an assumption about the elasticity of demand. For each story: A. State whether the assumption made about the elasticity of demand is correct or wrong. B. Justify your answer 1. Mr. Kim, a candidate for the state legislature, is proposing a large increase in the tax on cigarettes and Tiquor. He says, "I'm not proposing these taxes to raise revenue, but to discourage reckless drinking and the finky habit of smoking. If the prices of cigarettes and booze go up, most people will quit using them. Afte all, no one has to drink or smoke." 2. KSJ, a candidate for Congress, poses freezing the price of gasne. "There is no substitute for gasoline," he says. "People have to g from one place to an er. Economists who say higher prices will discourage people from buying as mucas as before dt live in the real world." 3. Councilman Acqua Man oppos a price increase for water during a recent drought. He claimed that there is no substitute for wer and that therefore the demand for water is inelastic. He believes an increase in the price of wer (with a water tax) will not cause the amount of water people to use to go down at all 4. Min King, the world traveler, says if the airlines want to attract more passengers, they should lower fares for business travelers as well as for vacationers. She believes both groups will respond equally to a price decrease Page | 2-Week 4
Transcribed Image Text:APPLYING ELASTICITY TO THE REAL WORLD Instructions: Each of the following stories contains an assumption about the elasticity of demand. For each story: A. State whether the assumption made about the elasticity of demand is correct or wrong. B. Justify your answer 1. Mr. Kim, a candidate for the state legislature, is proposing a large increase in the tax on cigarettes and Tiquor. He says, "I'm not proposing these taxes to raise revenue, but to discourage reckless drinking and the finky habit of smoking. If the prices of cigarettes and booze go up, most people will quit using them. Afte all, no one has to drink or smoke." 2. KSJ, a candidate for Congress, poses freezing the price of gasne. "There is no substitute for gasoline," he says. "People have to g from one place to an er. Economists who say higher prices will discourage people from buying as mucas as before dt live in the real world." 3. Councilman Acqua Man oppos a price increase for water during a recent drought. He claimed that there is no substitute for wer and that therefore the demand for water is inelastic. He believes an increase in the price of wer (with a water tax) will not cause the amount of water people to use to go down at all 4. Min King, the world traveler, says if the airlines want to attract more passengers, they should lower fares for business travelers as well as for vacationers. She believes both groups will respond equally to a price decrease Page | 2-Week 4
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