ECON MICRO
ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
Question
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Chapter 4, Problem 1.1P
To determine

Effect on the demand and supply curve.

Concept Introduction:

Demand curve shows all the possible combinations of price and quantity demanded of the good at a given time period.

Supply curve shows all the possible combinations of price and quantity supplied of the good at a given time period.

Expert Solution & Answer
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Explanation of Solution

    a. Due to the new cure of lung cancer, the smoker will demand more cigarettes because there is a cure of the lung cancer now. This will shift the demand curve to the right.
    b. Due to the increase in the price of cigars, the demand curve of the cigarettes will shift to the right because cigars are the substitute of the cigarettes.
    c. Due to the increase in the wage, the demand curve of the cigarettes will shift to the right because people now have more money to spend.
    d. Due to the discovery of the new fertilizer, the supply curve of the cigarettes will shift to the right because of the increase in the productivity.
    e. Due to the increase in the price of matches or lighter, the demand curve will shift to the left because matches or lighter and cigarettes are complementary goods.
    f. Due to the new laws which restricts the smoking in public places, the demand curve of the cigarettes will shift to the left because everybody has to respect the law.

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Problem 2: A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its product: Q=+15,000-2.80P+150A+0.3P+0.35Pm+0.2Pc (5,234) (1.29) (175) (0.12) (0.17) (0.13) R²=0.68 SER 786 F=21.25 The variables and their assumed values are P = Price of basic model = 7,000 Q==Quantity A = Advertising expenditures (in thousands) = 52 P = Average price of a personal computer = 4,000 P. Average price of a minicomputer = 15,000 Pe Average price of a leading competitor's workstation = 8,000 1. Compute the elasticities for each variable. On this basis, discuss the relative impact that each variable has on the demand. What implications do these results have for the firm's marketing and pricing policies? 2. Conduct a t-test for the statistical significance of each variable. In each case, state whether a one-tail or two-tail test is required. What difference, if any, does it make to…
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