Review Issues

Question 1

Catchup is a complement for hotdogs. If the price of hotdogs rises, what happens to the market for a catch-up? For tomatoes? For tomato juice? For orange juice?

Answer 1

Since catch up is a complement for hot dogs, when the price of hotdogs rises, the quantity demand for the hotdogs Falls, thus reducing the demand for catchup, causing both price and quantity of catchup to fall. Since the quantity of catchup Falls, the demand for tomatoes by catch a producers Falls, so both price and quantity of tomatoes falls. When the price of tomatoes Falls, producers of tomato juice

Question 2

Consider public policy aimed at smoking. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. It’s a pack of cigarettes currently cost $10 and the government wants to redo smoking by 20%, but how much should increase the price?

Answer 2

A price elasticity of demand of 0.4, reducing the quantity demanded of cigarettes by 20% requires a 50% increase in price, since 20÷50 = 0 .4. With the price of cigarettes currently $10, this would require an increase in the price to $15 a pack using the midpoint method note that $15 -$10 divided by 12.5 equals 0.4

Question 3

Consider public policy aimed at smoking if the government permanently increases the price of cigarettes, will the policy has a greater effect on smoking when you’re from now or five years from now?

Answer 3

I The policy will have a larger affect five years from now than it does one year from now. The elasticity is larger in the long run, since it may take some time for people to reduce their cigarette usage. The habit of smoking is hard to break in the short run.

Question 4

Suppose that the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. If the price of heating oil rises from 0.452 0.55 per liter, what happens to the quantity of heating oil demanded in the short run? In the long run? Use the midpoint method

Answer 4

With the price elasticity of demand of 0.2 in the short run, increasing the price from $0.45 to $0.55 which cause the quantity demanded of heating oil to drop by 4%, since 0.04÷0.2 equals 0.2. In the long run, 0.14/0.2=0.7 drop by 14%

Question 5

Imagine a society that produces military goods and consumer goods which we will call guns and butter. Explain why it most likely has a bowed out shape

Answer 5

It is bowed out because when most of the economies resources are being used to produce butter, the frontier is steep and will most of the economies resources are being used to produce guns, the front tier is very flat. When economy is producing a lot of guns, workers and machines best you did in making butter are being used to make guns, so each unit of done given up yo it’s a large increase in the production of butter.

Note guns is on the X axis and butter on the Y axis is just the bottom