1. When the price of souvenir t-shirts increased from $10 to $11, the quantity of t-shirts demanded decreased from 100 to 87 a week. Using theMid-Point Method(page 99), what is the price elasticity of demand for the t-shirts? Explain why the demand is elastic or inelastic (not just that it is greater or less than one, but what about them makes the demand elastic or inelastic)?Show your work. If you are unsure about how to determine percentages, review the appendix to Chapter One. Name a product you regularly purchase for which you have an inelastic demand and one for which you have an elastic demand. What determines whether your demand is elastic or inelastic for these products?
2. Let's say the current administration decides to make a college education more affordable, so they establish a price ceiling of $50 per credit hour for community colleges, $75 per credit hour for four year institutions, and $100 per credit hour for graduate classes. What is a price ceiling and what effect does it have on the market? List and explain several positive and or negative consequences of this action. What would happen to producer and consumer surplus?
3. The author defines market equilibrium as generating the largest possible total surpluses and being efficient when four conditions are met. What is meant by "total surpluses", and what are the four conditions that must be met? Can you name a market in which these conditions exist?
4. Critical Thinking: Let's say your company sells units of salt for $1.00 and wants to increase its revenue by raising the price to $1.20 per unit. We know, from the table on page 102, the price elasticity of demand for salt is 0.1. A member of marketing says that means if we raise price 20%, we will see a 2% reduction in sales. Is there anything wrong with this reasoning? Discuss what is right and wrong with this conclusion.
No words limit!