ECN 4 EXAM QUESTIONS AND ANSWERS ALL CORRECT LATEST 2024 UPDATE
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ECN 4
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ECN 4
ECN 4 EXAM QUESTIONS AND ANSWERS ALL CORRECT LATEST 2024 UPDATE
Describe the relationship between own price elasticity of demand and advertising. - Answer- Firms affect price elasticity by advertising its necessity and decreasing customers price sensitivity and increase brand loyalty.
Identify...
ECN 4 EXAM QUESTIONS AND
ANSWERS ALL CORRECT LATEST
2024 UPDATE
Describe the relationship between own price elasticity of demand and advertising. -
Answer- Firms affect price elasticity by advertising its necessity and decreasing
customers price sensitivity and increase brand loyalty.
Identify the own price elasticity of demand that suppliers in a perfectly competitive
market face - Answer- They face a perfectly elastic demand line.
The supply of drugs in the city has been reduced by government crack down but drug
related crime is up. explain. is interdicting drugs a bad idea? - Answer- By decreasing
supply of drugs in city, the price gets driven up, so more crime occurs to buy the more
expensive drugs. Demand is inelastic since there is no good substitute. It is not a bad
idea, but it needs to focus on both the supply and demand sides of drugs.
Critique the following assertion: interdicting supply is the solution to the nations drug
problem - Answer- Interdicting the supply side neglects the demand side. If there are
fewer drugs, addicts will just pay more for the small supply that is out there.
Identify and explain a case in which simple minded thinking that does not consider own
price elasticity issues can lead to unintended results - Answer- Raise the price of food at
a restaurant without looking at price elasticity issues to raise revenue when there are
plenty of other substitutes, so they really lose revenue.
Respond to the following statement: this is one hell of a model. it is loaded with great
answers to policy puzzles. - Answer- A single model cannot solve policy, it just helps us
to think systematically and analyze policy questions correctly instead of simplistically.
Explain the concept of tax incidence and tax burden - Answer- Tax burden: the actual
weight of the tax. Tax incidence: who really pays the tax and who bear the burden.
Describe with an example how own price elasticity of demand can affect the impact of a
tax with respect to revenue generated and changing market behavior. - Answer- If you
raise the tax on tobacco, you can generate revenue from smokers. However, it will
discourage new consumers therefore change the market behavior.
, Write out the full product demand relationship in functional form including the shift
variables. - Answer- Q1D = D(p1 | pr, I, T)
pr = price of related goods,
I = income & T = tastes.
Identify the shift variables in the product demand relationship. - Answer- The shift
variables in the product demand relationship are the price of related goods, income and
tastes.
Give an example of tastes as a shift variable. Demonstrate graphically how the market
will respond in your example. - Answer- If you prefer this product, the demand line will
shift to the right.
Define: cross price elasticity of demand. - Answer- It means how the price of one good
is affected by a change in price of another related good.
Give the equation that measures the cross price elasticity of demand. - Answer- ε 1x2 =
(% Quantity Change Of Good 2) / (% Price Change Of Good 1).
Define: complements. - Answer- Complements are two goods that are often used by
consumers together.
Describe the relationship between two goods that have a negative cross price elasticity,
Give an example. - Answer- As the price of one good goes up, the price and qd of
another good will go down.
Define: substitutes - Answer- Substitutes are two goods that can be used
interchangeably for each other
Describe the relationship between two goods that have a positive cross price elasticity.
Give an example. - Answer- As the price of one good goes up, the demand quantity of
another product goes up.If the sign is positive, but the value of ε 1x2 is small, then
goods are substitutes but it takes a big price increase in one to cause a significant
substitution to the other.
Describe the connection between cross price elasticity and the concept of a market
system as a web of connections. - Answer- In the web of a market, all goods have some
degree of cross price elasticity. A change in the price of one good will affect the whole
market, some parts more than others, like a ripple in one corner of a spider web will
travel outwards and weaken, but still affect the whole web.
Develop a case (different from the one covered) that demonstrates the importance of
cross price elasticity to private policy making. Include internal and external cross price
effects. - Answer- movie tickets,popcorn, and DVD
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