
(a)
The elasticity of the given good which is cars or Chevrolets and the reason behind it with respect to the determinant of demand.

Answer to Problem 1P
Cars have elastic demand and Chevrolets have
Explanation of Solution
The good which have more substitutes will be more inelastic and the one with less substitutes is more elastic. Cars have less close substitutes so it will have elastic demand and Chevrolets have more substitutes likes Ford, Suzuki so it will have inelastic demand.
Here, the responsible determinant will be availability of substitute's goods.
Concept Introduction:
Elasticity of demand is the measure of change of responsiveness in the quantity demanded due to change in the price. It can be represented as the ratio of percentage change in quantity demanded and percentage change in the price. It implies that how the behavior of people change due to change in the price.
(b)
The elasticity of the given good which is salt or housing and the reason behind it with respect to the determinant of demand.

Answer to Problem 1P
Housing will have elastic demand and Salt will have inelastic demand. The determinant of demand which is responsible is Nature of Commodity.
Explanation of Solution
Salt is the necessity good and if its price increases, the demand would not change because it does not have any substitute so it has inelastic demand. Housing will have elastic demand because its price change will have huge effect on demand.
Here, the responsible determinant will be Nature of Commodity.
Concept Introduction:
Elasticity of demand is the measure of change of responsiveness in the quantity demanded due to change in the price. It can be represented as the ratio of percentage change in quantity demanded and percentage change in the price. It implies that how the behavior of people change due to change in the price.
(c)
The elasticity of the given good which is New York Met games or a Cleveland Indians Games and the reason behind it with respect to the determinant of demand.

Answer to Problem 1P
New York met games will have elastic demand and Cleveland games will have inelastic demand. The determinant of demand which is responsible is proportion of Income spent on a Commodity.
Explanation of Solution
New York met games will be cheaper as they are played locally. So this good will have elastic demand. Cleveland games will require the travel cost also. Hence, they have inelastic demand.
Here, the responsible determinant will be proportion of Income spent on a Commodity.
Concept Introduction:
Elasticity of demand is the measure of change of responsiveness in the quantity demanded due to change in the price. It can be represented as the ratio of percentage change in quantity demanded and percentage change in the price. It implies that how the behavior of people change due to change in the price.
(d)
The elasticity of the given good which is Natural gas this month or over the course of the year and the reason behind it with respect to the determinant of demand.

Answer to Problem 1P
Natural gas this month will have inelastic demand and for over the course of year will have elastic demand. The determinant of demand which is responsible is Time adjustment factor.
Explanation of Solution
Natural gas for over the course of year will have more time to adjust and find more substitutes. Hence, demand will be elastic and natural gas this month will have inelastic demand.
Here, the responsible determinant will be Time adjustment factor.
Concept Introduction:
Elasticity of demand is the measure of change of responsiveness in the quantity demanded due to change in the price. It can be represented as the ratio of percentage change in quantity demanded and percentage change in the price. It implies that how the behavior of people change due to change in the price.
Want to see more full solutions like this?
Chapter 6 Solutions
Exploring Economics
- 4. Consider the following regression equation, where Google is equal to 1 if an individual in thesample has worked at Google and 0 otherwise, and Earnings is annual earnings in thousands ofpounds (standard errors in parentheses):Earnings \ = 25000(12.5)+ 42000(7.0)Google,(a) Interpret the coefficient on Google.(b) Is the coefficient on Google statistically significant at the 5% level? How do you know?(c) Suppose that instead of Google we had used a variable called NeverGoogle, equal to 1 if anindividual has never worked at Google and 0 otherwise. (i) How would the slope coefficientchange? (ii) What would happen to the intercept? (d) What prevents us from interpreting the coefficient on Google as a causal effect? Give examplesin your answer.arrow_forward4. Examine the regression table below before answering the questions that follow.Throughout, the Log() function represents the natural logarithm, so that Log(e) =1:Dependent Variable: Log(Expenditures on Cigarettes + 1)Method: Least SquaresVariable Coefficient Std. ErrorConstant 0.50 0.41Log(Income+1) −0.02 0.002(a) Why are the dependent and explanatory variables in the form log(1+x), ratherthan log(x)? (b) Which of the above coefficients are statistically significant? How do you know?(c) Interpret the coefficient on Log(Income+1). (d) What is the predicted level of Log(Expenditures on Cigarettes + 1) for anobserved individual with income of e10 − 1? (4arrow_forward3. Consider the following three (fictional) data points:Country Ultima Thule Narnia NeverlandGDP per capita (US $, 2021, in thousands) 10 30 20Deaths from COVID-19 as of Jan. 2023, millions 0.24 0.16 0.05(a) What is the slope of the line of best fit through these three points, whereDeaths from COVID-19 is the dependent variable and GDP per capita is theexplanatory variable? (b) The standard error for the slope parameter is 0.009. What does this standarderror measure? (c) Is the slope parameter statistically significant at the 5% level of significance?(The relevant critical value is not the usual value, but 4.303, due to the tinysample size). Explain what this means. (d) Why might this slope parameter be a misleading indicator of the relationshipbetween these two variables?arrow_forward
- Consider the following estimated regression equation, where both Rent and Earnings aremeasured in pounds (£) at the individual level (standard errors in parentheses):log(\Rent) = 6.9(0.69)+ 0.9(0.3)log(Earnings),(a) Interpret the coefficient on log(Earnings). (b) If we divided Earnings by 1000, so that it is measured in 1000s of pounds instead of pounds,how would (i) the slope, (ii) the intercept change in the above equation? Now suppose the variable London is added, which is equal to one if an individual iives inLondon, and zero otherwise. The estimated regression equation changes to:log(\Rent) = 6.22(0.622)+ 0.5(0.05)log(Earnings) + 2(0.5)London,(c) Interpret the coefficient on London. (d) Explain why the coefficient on log(Earnings) when London is included in the regression andthe coefficient on log(Earnings) when London is not included in the regression are not thesame.arrow_forward3. Consider the following regression equation, where Cigs is daily spending on cigarettes in poundssterling (£), Y earsEduc is years of education, and F emale equals one if an individual is femaleand zero otherwise (standard errors in parentheses):Cigs [ = 4(1.6)− 0.08(0.032)Y earsEduc − 0.5(0.2)F emale,(a) Interpret the coefficients on Y earsEduc and F emale. (b) What does the model predict the average daily spending on cigarettes would be for womenwith 12 years of education? (c) Form the 95% confidence interval for the coefficient on F emale. (d) Economists are often interested in estimating production functions of the Cobb-Douglas form(Yiis the ith firm’s output, Liits spending on labour, and Kiits spending on capital):Yi = ALαi Kβi,How might someone estimate α and β from this equation using linear regression?arrow_forward2. The demand and supply functions for two interdependent goods X and Y are givenbyQDX = 7 − 4PX + 2PYQSX = −6 + 4PX − PYQDY = 1 + PX − PYQSY = −4 − PX + 2PY(a) Find the market equilibrium condition for each good. (b) Express the equilibrium conditions in the matrix form Ax = b.(c) Find the inverse of matrix A. (d) Given your result in part (c), calculate the equilibrium prices. (e) What is the equilibrium quantity for goods X and Y ?arrow_forward
- 2. A two-sector macro-economic model satisfies the following structural equations:Y = C + I∗C = aY + bwhere 0 < a < 1 and b > 0 are parameters and I∗ denotes investment.(a) What are the exogenous and endogenous variables in this model? (b) Re-arrange this system of equations to express the endogenous variables in terms of the exogenous variables and parameters. (c) Express this system of equations in the matrix form Ax = b. (d) Show that the inverse of matrix A exists.arrow_forwardThe equilibrium prices P1 and P2 for two goods satisfy the equations:−4P1 + P2 = −132P1 − 5P2 = −7(a) Express this system of equations in the matrix form Ax = b. (b) What is the determinant of matrix A? (c) Find the inverse of matrix A. (d) Using matrix algebra, calculate the equilibrium pricesarrow_forward1. An individual’s utility function is given as, where x1 and x2 denote the number of units consumedof goods 1 and 2 respectively:U = x121 x132,(a) Express the marginal utilities of x1 and x2. (b) Show that the marginal utility of x1 is positive and interpret this result. (c) Find the value of the marginal utilities when x1=16 and x2=8. (d) Find the marginal rate of commodity substitution at this point. (e) Estimate the change in utility when x1 and x2 both increase by 1 unit.arrow_forward
- Which of the following graphs best represents the production possibility frontier of Country Y (Line Y), the production possibility frontier of Country Z (Line Z), and the production possibility frontier of this whole economy (Line W)? (Hint: Find W by adding the productive capabilities of Country Y and Z) Group of answer choicesarrow_forwardWhich of the following factors tend to decrease the wage differential between union and non union workers: unions tend to organize the firms with the lowest ability to pay initially all of the above unions must moderate their wage demand to keep workers competitive some nonunion employers pay their employees above union wages only ‘a’ and ‘b’ abovearrow_forwardThe accompanying graph shows the short-run demand and cost situation for a price searcher in a market with low barriers to entry. Price (dollars) 24 8 MC ATC MR 30 D 45 50 Quantity/time The firm will maximize its profit at a quantity of units. After choosing the profit maximizing quantity, the firm will charge a price of The firm will receive $ in revenue at the profit-maximizing quantity. The total cost of production for this profit-maximizing quantity is S The maximum profit the firm can earn in this situation is $ per unit for this output. How will the situation change over time? Profits will attract rival firms into the market until the profit-maximizing price falls to the level of per-unit cost. ◇ Losses will induce firms to leave this market until the profit maximizing price falls to zero. The market will adjust until the price charged by this firm no longer exceeds marginal cost at the profit-maximizing quantity. This market is already in long-run equilibrium, and will not…arrow_forward
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, IncEconomics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub CoEssentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning




