MICROECONOMICS
MICROECONOMICS
11th Edition
ISBN: 9781266686764
Author: Colander
Publisher: MCG
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Chapter 6, Problem 4QE
To determine

Determine the price elasticity of demand.

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Question The following appeared in an article in the Wall Street Journal: “Last week, true to discount roots dating to 1971, Southwest [Airlines] launched a summer fare sale on domestic flights, with one-way prices as low as $49. As in the past, major competitors were forced to follow suit.” Why would other airlines be “forced” to follow Southwest’s fare decrease? What if this fare decrease took place during an economic recession, when incomes and the demand for airline travel were falling?
In “A Former Crack Dealer on the Economics of Drugs,” they mention demand for crack is inelastic. Draw a supply and demand curve and show how total revenue changes when there is a decrease in supply. How is this related to the fact that drugs are illegal? That is, what would happen to total revenue if drugs were made legal?
Suppose a local supermarket runs a discount campaign on the sales of shampoos using discount coupons – any customer who shows a discount coupon will be offered an X% discount on the original retail price on Black Friday. Briefly explain the economics behind this discount campaign.
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