To explain the consequences of certain events on the US market for tobacco products.
Explanation of Solution
Certain events cause fluctuations in
Introduction:
a)
Shifts in demand due to a change in consumer expectations.
a)
Answer to Problem 1QAP
The demand curve will shift to the right which indicates an increase in demand due to the change in consumer expectations due to the food and drug administration classifying tobacco as an addictive drug.
Explanation of Solution
If there is a scenario where tobacco is classified as an addictive substance by a government authority such as the food and drug administration, it is likely that consumers of tobacco to view this signal and expect prices to increase steeply or expect tobacco products will be difficult to obtain in the future. Accordingly, the demand curve D1 will shift to D2.
Introduction:
b)
Shifts in supplyand increase in prices due to imposing an excise tax.
b)
Answer to Problem 1QAP
The supply curve will shift to the left which indicates an increased cost of providing tobacco to the market due to the excise tax.
Explanation of Solution
If there is a scenario where an excise tax is imposed, tobacco producers’ costs will increase, which will result in being unable to supply the product at the same
Introduction:
c)
Disruption in supplyand increase in prices due to natural events.
c)
Answer to Problem 1QAP
The supply curve will shift to the left which indicates a reduced supply of tobacco products due to Hurricane Fran.
Explanation of Solution
If there is a supply disruption to resources, caused due to hurricane Fran, tobacco producers’ supply will reduce until the supply disruption is rectified. This will result in being unable to supply the product to the market which will make tobacco products scarce in the market. This scarcity of tobacco products as well as resources creates a price hike. The S curve will shift to the left which is denoted by S2.
Introduction:
d)
The impact on tobacco products by producer expectations on future prices and availability.
d)
Answer to Problem 1QAP
The supply curve will shift to the left which indicates a reduced supply of tobacco products due to supplier expectations on likely impositions on availability and prices.
Explanation of Solution
If there is a lawsuit by several states on tobacco producers the tobacco producers will limit supply due to price increases arising from litigation costs as well as taxes or reduced availability on tobacco products through regulations. This will result in tobacco producers reducing their supply to the market. Hence the S curve will shift to the left which is denoted by S2.
Introduction:
e)
Shifts in demand due tothe change of the perception on a complement or substitute good.
e)
Answer to Problem 1QAP
The demandcurve will shift to the right which indicates anincreased demand for tobacco products due to coffee being unappealing due to the risk of stomach cancer.
Explanation of Solution
In an event where research finds that a substitute for tobacco, in this case, coffee is harmful, the demand for tobacco products will rise due to consumer perception that coffee is no better than tobacco. This will result in coffee consumers switching to tobacco products and consumers who have limited their tobacco consumption and resorted to coffee switching back to tobacco creating increased demand. Hence the D1 curve will shift to the right which is denoted by D2.
Introduction:
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Chapter 2 Solutions
EBK HEALTH ECONOMICS AND POLICY
- Greentech- a high technological pharmaceutical company, has developed a clot-dissolving drug called TPA that will halt a heart attack in progress. TPA saves life, minimizes hospital stays, and reduces damage of the heart itself. It is priced at $ 2,200 per dose. What pricing approach does Greentech appear to be using? Is demand for this drug is likely to be elastic with price? Note: Please answer the question with points and exampleUrgent needed within 30minarrow_forwardYour friend is a talented artist. She has no other employment options, she finds painting effortless, and the cost of materials is low enough that it can be safely ignored. Based on your analysis of market data, you estimate that elasticity of demand for her paintings is given in the displayed table. If your friend wants to maximize her income, what price do you advise her to charge for her paintings? Include a brief explanation. (If you think you can only determine a price range, as opposed to a precise price, give a price range.)arrow_forwardTrue or False: A 10% reduction in price that leads to a 10% increase in the amount purchased indicates a price elasticity of more than 1 (in absolute value). True False True or False: A 10% reduction in price that leads to a 2% increase in total expenditures (or total revenue) indicates a price elasticity of more than 1 (in absolute value). True False If the percentage change in price is less than the resultant percentage change in quantity demanded, demand is .arrow_forward
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- 15. Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companies have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm DrugAbuse Sciences (DAS)-is a notable exception. It has spent $170 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $30 million today. Unfortunately, the firm's opportunity cost of funds is 7 percent and it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. Should DAS continue with its plan to bring the drug to market, or should it abandon the project? Explain.arrow_forward15. Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companies have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm DrugAbuse Sciences (DAS)-is a notable exception. It has spent $170 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $30 million today. Unfortunately, the firm's opportunity cost of funds is 7 percent and it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. Should DAS continue with its plan to bring the drug to market, or should it abandon the project? Explain.…arrow_forwardAccording to Hanushek & Quigley (1980), the estimated price elasticity of demand for housing, Ed, ranges from -0.64 to -0.45. Please interpret these elasticity estimates. Is demand elastic or inelastic? How responsive is housing demand to changes in price? Assume that the housing market is in equilibrium at p° = 100 and Q° = 100. Please draw this market outcome under the separate assumptions of ɛa = -0.64 and Ea = -0.45 (i.e., draw two separate demand curves, one of which is more price elastic than the other). Be sure to label your graph accordingly.arrow_forward
