MICROECONOMICS
11th Edition
ISBN: 9781266686764
Author: Colander
Publisher: MCG
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Textbook Question
Chapter 6, Problem 7IP
In 2004, (Congress allocated over $20 billion to tight illegal drugs About 60 percent of the funds was directed at reducing the supply of drugs through domestic law enforcement and interdiction. Some critics of this approach argue that supply-side approaches to reduce the drug supply actually help drug producers.
- a. Demonstrate graphically the effect of supply-side measures on the market for illegal drugs.
- b. Explain how these measures affect drug producers. (Hint Consider the elasticity of
demand .) - c. Demonstrate the effect of demand-side measures such as treatment and prevention on the market for illegal drugs.
- d. How does the shift in demand affect the profitability of producers?
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8. According to the textbook, which of the following statements about drug interdiction is (are) correct?
(x) Higher drug prices caused by drug interdiction policies may cause an increase in drug-related crime
because drug addicts would have a greater need for quick cash.
(y) Drug interdiction shifts the supply curve of drugs to the left, and, as a result, raises prices and total
revenue in the drug market.
(z) Advocates of drug interdiction argue that higher drug prices caused by such policies may discourage
drug experimentation by young people.
(x), (y) and (z)
(x) and (y) only
С.
(x) and (z) only
(y) and (z) only
(y) only
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Consider the public policy aimed at smoking:
(a) Suppose studies indicate that the price elasticity of demand for cigarettes is about 2. If the government is able to increase the
price of a pack of cigarette from $2 to $3 (through may be, higher taxes), by what percentage will the consumption (demand) of
cigarettes decrease? Please show all calculations.
(b) Studies also find that the price elasticity of demand for cigarettes for higher income earners is more inelastic compared to that of
those earning less income. Why might this be true? Please explain your answer
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1. City planners are proposing a 5% increase in all water rates. Prior to adopting this policy, the city
council would like to receive information about the effects on consumers and the water department.
We can rough out some quick and useful estimates using knowledge of an annual demand point
and the price elasticity of demand (remember the point expansion method). Suppose the water
department delivers 180 million gallons per year while taking in $740,000 in revenue per year. Of
this revenue, $520,000 is derived from volumetric (metered) charges, and the remainder comes from
fixed fees such as monthly charges and late fees.
Assume that the price elasticity of water demand is -0.3.
(a) How much will the consumers' total welfare change? Hints:
• Remember the point expansion method, where using the elasticity and a point from on the
demand curve, we can reclaim the entire demand equation.
• Assume a linear demand curve.
• Remember the elasticity formula:
dw P
dp w
• Note that this…
Chapter 6 Solutions
MICROECONOMICS
Ch. 6.1 - If when price rises by 4 percent, quantity...Ch. 6.1 - Prob. 2QCh. 6.1 - Prob. 3QCh. 6.1 - Prob. 4QCh. 6.1 - Prob. 5QCh. 6.1 - Prob. 6QCh. 6.1 - Prob. 7QCh. 6.1 - Prob. 8QCh. 6.1 - Prob. 9QCh. 6.1 - Prob. 10Q
Ch. 6 - Determine the price elasticity of demand if, in...Ch. 6 - A firm has just increased its price by 5 percent...Ch. 6 - When tolls on the Dulles Airport Greenway were...Ch. 6 - Prob. 4QECh. 6 - Prob. 5QECh. 6 - Prob. 6QECh. 6 - Prob. 7QECh. 6 - Economists have estimated the following...Ch. 6 - Prob. 9QECh. 6 - A newspaper recently lowered its price from 5.00...Ch. 6 - Once a book has been written, would an author...Ch. 6 - Prob. 12QECh. 6 - Prob. 13QECh. 6 - Suppose average movie ticket prices are 8.50 and...Ch. 6 - Which of the following producers would you expect...Ch. 6 - Prob. 16QECh. 6 - Prob. 17QECh. 6 - Prob. 18QECh. 6 - Prob. 19QECh. 6 - Prob. 20QECh. 6 - Prob. 21QECh. 6 - Prob. 22QECh. 6 - Prob. 1QAPCh. 6 - Prob. 2QAPCh. 6 - Prob. 3QAPCh. 6 - Prob. 4QAPCh. 6 - Prob. 5QAPCh. 6 - Price elasticity is not just a technical economic...Ch. 6 - Prob. 1IPCh. 6 - Prob. 2IPCh. 6 - Prob. 3IPCh. 6 - Prob. 4IPCh. 6 - Prob. 5IPCh. 6 - In 2004, Congress allocated over 20 billion to...Ch. 6 - In 2004, (Congress allocated over 20 billion to...Ch. 6 - Prob. 8IPCh. 6 - Prob. 9IPCh. 6 - Prob. 10IP
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- вср 5) Suppose you're an economist for a private university, and the Board of Trustees tasks you with determining how much a tuition increase would impact university enrollment for different types of students. The proposed tuition increase is 10%. The absolute value of the price elasticity of demand for legacy students, that is, students whose parents graduated from the university, is 0.15 and for nonlegacy students is 0.33. The demand curve for legacy students is elastic than the demand curve for nonlegacy students. The rise in tuition would lower student enrollment by %. for non legacy studens Less: 1.5 Less; 3.3 More; 1.5 More; 3.3 0110arrow_forwardSuppose that legalizing the use of marijuana would decrease its price by 92 percent. If the price elasticity of demand for marijuana is -2.75, what would be the percentage increase in the quantity of marijuana demanded from legalizing marijuana? percent. (Enter a numeric response using a real number rounded to two decimal places.) Suppose instead that the price elasticity of demand for marijuana is -0.17. What would be the percentage increase in the quantity of marijuana demanded from legalizing marijuana? decimal places). percent (enter your response rounded to two The higher the absolute value of the price elasticity of demand for marijuana, the V the increase in marijuana use that would result from legalization.arrow_forwardConsider public policy aimed at alcohol consumption. a) Studies indicate that the price elasticity of demand for alcohol is about 0.5. If a bottle of rum currently cost $22 and the Government wants to reduce alcohol consumption by 25 percent, by how much should it increase the price? b) What will be the impact of an increase in price on the revenues of the alcohol manufacturer? c) If the Government permanently increases the price of alcohol, will the policy have a larger effect on the consumption of alcohol one year from now or five years from now? d) Studies also find that teenagers have higher price elasticity than do adults. Why might this be true?arrow_forward
- 4. What do you think would be the effect on the equilibrium price and quantity of marijuana as a result of its consumption being legalized? Give reasons for your answer.arrow_forward1 Given the demand function Q = 500 – 3P – 2Pa+0.01Y where P = 20, PA = 30 and Y = 5000, find (a) the price elasticity of demand (b) the cross-price elasticity of demand (c) the income elasticity of demand If income rises by 5%, calculate the corresponding percentage change in demand. Is the good inferior or superior?arrow_forward16. As a newly college graduate with a BA degree in Economics, you are being asked to evaluate the following situations involving elasticity: SMC would like to increase its enrollment of international students by 5% in the Fall of 2021; its current per unit price is $250 and that its elasticity of demand is -0.7 To achieve SMC's enrollment target of 5%, you would suggest that it should its tuition per unit by % and that the new per unit price be at $ O raise ; 7.14 ; 232.14 cannot be computed based on information provided lower; 7.14 ; 232.14 lower; 14 ; 215 lower; 7; 238arrow_forward
- True or False: Suppose you are advising the Dairy Farmers of Canada on changes in the milk market. Suppose the current price is $4.5 per gallon of milk and the quantity demanded is 2.5 million gallons of milk per day. Suppose price elasticity of demand is constant at 0.7. You are considering reducing the supply, so that the price rises to $5 per gallon. Total expenditure on milk by consumers will rise.arrow_forward. Gas Prices and Public Transit Ridership. Consider the effect of higher gasoline prices on public transit ridership. The initial price of public transit is $2.00 per ride and the initial ridership is 100,000 people per day. Suppose the elasticity of transit ridership with respect to the price of gasoline is +0.667 or (2/3) and the price of gasoline increases by 30 percent? A. Assume the price of public transit remains at $2. Use a graph to show the effect of the increase in the gas price on transit ridership. B. Suppose the transit authority matches the increase in the price of gasoline, increase the transit fare by 30 percent. The price elasticity of demand for transit ridership is 0.333 (or 1/3). Use your graph to show the combined effect of the gas tax and higher transit fare. C. Explain why the net change in transit ridership is positive or negative.arrow_forward9. Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold AND in a decrease in total spending on illegal drugs by drug users? A. The price elasticity of supply for illegal drugs is 0.8. В. The price elasticity of demand for illegal drugs is 1.3. С. The interdiction has the effect of shifting the demand curve for illegal drugs to the right. As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity of illegal drugs sold decreases by 16 percent. Е. A and C, onlyarrow_forward
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