Question: Define demand. Define supply. In your answers,

> Mr. Smith has the following demand equation for a certain product: Q = 30 - 2P. a. At a price of $7, what is the point elasticity? b. Between prices of $5 and $6, what is the arc elasticity? c. If the market is made up of 100 individuals with demand curv

> The following relations describe the supply and demand for posters. QD = 65,000 - 10,000P QS = -35,000 + 15,000P where Q is the quantity and P is the price of a poster, in dollars. a. Complete the following table. b. What is the equilibrium price?

> The equation for a demand curve has been estimated to be Q = 100 - 10P + 0.5Y, where Q is quantity, P is price, and Y is income. Assume P = 7 and Y = 50. a. Interpret the equation. b. At a price of 7, what is price elasticity? c. At an income level of 50

> ABC Sports, a store that sells various types of sports clothing and other sports items, is planning to introduce a new design of Arizona Diamondbacks’ baseball caps. A consultant has estimated the demand curve to be Q = 2,000 - 100P where Q is cap sales

> The demand function for a cola-type soft drink in general is Q = 20 - 2P, where Q stands for quantity and P stands for price. a. Calculate point elastic cities at prices of 5 and 9. Is the demand curve elastic or inelastic at these points? b. Calculate a

> According to a study, the price elasticity of shoes in the United States is 0.7, and the income elasticity is 0.9. a. Would you suggest that the Brown Shoe Company cut its prices to increase its revenue? b. What would be expected to happen to the total q

> In order to attract more customers on Mondays (a slow day), Alex’s Pizza Shop in Austin decided to reduce the price of their pizza rolls from $3.50 to $2.50. As a result, Monday sales increased from 70 to 130. Also, Alex’s sales of soft drinks rose from

> Would you expect cross-price elasticity between the following pairs of products to be positive, negative, or zero? a. Television sets and DVRs b. Rye bread and whole wheat bread c. Construction of residential housing and furniture d. Breakfast cereal and

> Given the demand equation Q = 1,500 - 200P, calculate all the numbers necessary to fill in the following table: Elasticity Marginal Revenue Total Point Arc Revenue $7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50

> When the I Phone was launched in the second quarter of 2008, it was priced at $599, and Apple sold 270,000 units during this quarter. In mid-September of that year, Apple reduced the price to $434, and sales rose to 1,119,000 during this next quarter. Wi

> Manning Inc., is the leading manufacturer of garage doors. Demand for residential garage door sales depends, of course, on the rate of new house building activity, which in turn depends on changes in income per capita. During the past year, Manning sold

> The Distinctive Fashions Company increased its advertising budget for its leading brand of women’s yoga apparel from $10,000 in 2011 to $15,000 in 2012. Its sales increased from 900 units to 1,050 units, while the price remained the same at $120 per garm

> Consider the following supply and demand curves for a certain product. QS = 25,000P QD = 50,000 - 10,000P a. Plot the demand and supply curves. b. What are the equilibrium price and equilibrium quantity for the industry? Determine the answer both algebra

> (Read the “Newspapers and Their Price Elasticity” section in Appendix 4A before answering the question.) What is the arc demand elasticity for the London Times? What happened to revenue as a result of the price decrease?

> The Transportation Authority in Any town, USA, raised bus fares from $1 to $1.15 on January 1, 2011. The authority’s statistics show that the number of passengers riding buses decreased from 672,000 in 2011 to 623,000 in 2012. a. How much did revenue cha

> The demand curve for product a is given as Q = 2000 - 20P. a. How many units will be sold at $10? b. At what price would 2,000 units be sold? 0 units? 1,500? c. Write equations for total revenue and marginal revenue (in terms of Q). d. What will be the t

> The Compute Company store has been selling its special word processing software, Ace word, during the last 10 months. Monthly sales and the price for Ace word are shown in the following table. Also shown are the prices for a competitive software, Good wr

> A local supermarket lowers the price of its vanilla ice cream from $3.50 per half gallon to $3. Vanilla ice cream (unit) sales increase by 20 percent. The store manager notices that the (unit) sales of chocolate syrup increase by 10 percent. a. What is t

> The Acme Paper Company lowers its price of envelopes (1,000 count) from $6 to $5.40. If its sales increase by 20 percent following the price decrease, what is the elasticity coefficient?

> Background Information: Restaurants have traditionally used bottom-end wines to sell by the glass (BTG) at reasonably low prices per glass. In recent years, there has been a growing trend within the restaurant industry to extend BTG programs to higher-en

> Briefly explain the meaning of the F-test. Why do you think this test is considered to be more important in multiple regression analysis than it is in simple regression analysis?

> Summarize the steps involved in conducting the t-test. What is the basis for using the “rule of 2” as a convenient method of evaluating t-ratios?

> Briefly explain the meaning of R2. A time series analysis of demand tends to result in a higher R2 than one using cross-sectional data. Why do you think this is the case?

> Would there be any differences in the set of variables used in a regression model of the demand for consumer durable goods (e.g., automobiles, appliances, furniture) and a regression model of the demand for “fast-moving consumer goods” (e.g., food, bever

> Explain the difference between time series data and cross-sectional data. Provide examples of each type of data.

> Would you expect the cross-elasticity coefficients between each of the following pairs of products to be positive or negative? Why? a. Personal computers and software b. Electricity and natural gas c. Apples and oranges d. Bread and DVRs.

> What would you expect to happen to spending on food at home and spending on food in restaurants during a decline in economic activity? How would income elasticity of demand help explain these changes?

> Discuss the relative price elasticity of the following products: a. Mayonnaise b. A specific brand of mayonnaise c. Chevrolet automobiles d. Jaguar automobiles e. Washing machines f. Air travel (vacation) g. Beer h. Diamond rings

> It has often been said that craft unions (electricians, carpenters, etc.) possess considerably greater power to raise wages than do industrial unions (automobile workers, steel workers, etc.). How would you explain this phenomenon in terms of demand elas

> Use the following equation to derive a demand schedule and a demand curve. What types of products might exhibit this type of nonlinear demand curve? Explain. Q = 100P -0.3

> Explain the difference between point elasticity and arc elasticity. What problem can arise in the calculation of the latter, and how is it usually dealt with? In actual business situations, would you expect arc elasticity to be the more useful concept? W

> The U.S. Postal Service has been raising postal rates on a regular basis. The service had been losing money. One of the reasons is increased competition from companies such as United Parcel Service and Federal Express. Another reason is the use of faxes

> Discuss the income elastic cities of the following consumer products: a. Margarine b. Fine jewelry c. Living room furniture d. Whole lobsters

> A company faced by an elastic demand curve will always benefit by decreasing price. True or false? Explain.

> Why do you think that whenever governments (federal and state) want to increase revenues, they usually propose an increase in taxes on cigarettes and alcohol?

> Suppose the federal tax on gasoline increased by 5 cents per gallon. Do you think that such an increase, reflected in the price of gasoline, would have a significant impact on gasoline consumption?

> State the general meaning of elasticity as it applies to economics. Define the price elasticity of demand.

> Why do you think it is important for managers to understand the mechanics of supply and demand both in the short run and in the long run? Give examples of companies whose business was either helped or hurt by changes in supply or demand in the markets in

> Explain the difference between shortages and scarcity. In answering this question, you should consider the difference between the short run and the long run in economic analysis.

> Discuss the differences between the short run and the long run from the perspective of producers and from the perspective of consumers.

> Following are three sample equations. Plot them on a graph in which Q is on the vertical axis and P is on the horizontal axis. Then transform these equations so P is expressed in terms of Q and plot these transformed equations on a graph in which P is on

> Define the guiding or allocating function of price.

> Define the rationing function of price. Why is it necessary for price to serve this function in the market economy?

> Define comparative statics analysis. How does it compare with sensitivity analysis or what-if analysis used in finance, accounting, and statistics?

> In defining demand and supply, why do you think economists focus on price while holding constant other factors that might have an impact on the behavior of buyers and sellers?

> Briefly list and elaborate on the factors that will be affecting the supply of the following products in the next several years. Do you think these factors will cause the supply to increase or decrease? a. Crude oil b. Beef c. Computer memory chips d. Ho

> Briefly list and elaborate on the factors that will be affecting the demand for the following products in the next several years. Do you think these factors will cause the demand to increase or decrease? a. Convenience foods (sold in food shops and super

> Overheard at the water cooler in the corporate headquarters of a large manufacturing company: “The competition is really threatening us with their new product line. I think we should consider offering discounts on our current line in order to stimulate d

> “If Congress levies an additional tax on luxury items, the prices of these items will rise. However, this will cause demand to decrease, and as a result the prices will fall back down, perhaps even to their original levels.” Do you agree with this statem

> What are some of the forces that cause managers to act in the interest of shareholders?

> A travel company has hired a management consulting company to analyze demand in twenty-six regional markets for one of its major products: a guided tour to a particular country. The consultant uses data to estimate the following equation (the estimation

> The following function describes the demand condition for a company that makes caps featuring names of college and professional teams in a variety of sports. Q = 2,000 - 100P where Q is cap sales and P is price. a. How many caps could be sold at $12 each

> What would happen to revenue from seignorage if the inflation rate was very high? Hint: check Equation 8 and assume a quickly rising price level.

> Describe the effects on the economy if the Federal Reserve uses monetary policy to burst a wrongfully identified asset-price bubble.

> Suppose a central bank identifies an increase in lending to the floral industry. In particular, many small businesses are borrowing aggressively to import tulips. As market participants observe a sharp increase in the price of tulips, the central bank co

> Critics of the Federal Reserve in 2013 warned that the Federal Reserve’s commitment to keeping the federal funds rate near zero for an extended period of time might increase expected inflation. Explain why low levels of interest rates might fuel inflatio

> According to the Federal Reserve Act of 1913 (Section 13.3), “In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, […] may authorize any Federal Reserve bank, during such periods as the said board may determine, […]

> The following figure, from the Federal Reserve Monetary Policy Report to the Congress (July 21, 2009), shows mortgage delinquency rates from 2001 to 2009 in the United States. a) Explain why mortgage delinquency rates were higher for subprime mortgages.

> According to the FDIC, thirty banks failed or were assisted during 2008: six were based in California, two in Florida, and five in Nevada. The New York Times reported in 2007 that Nevada 1-36.1%2, Florida 1-30.8%2, and California 1-21.3%2 were among the

> As the effects of the 2007–2009 financial crisis became more pervasive, legislators and policy makers debated about the role played by the Federal Reserve as a regulatory agency. While the Federal Reserve argued for more regulatory oversight of the finan

> The following figure, from the Federal Reserve Monetary Policy Report to the Congress (July 21, 2009), shows the gross issuance of mortgage backed securities (MBS) in the United States from 2007 to the second quarter of 2009. Comment on the drastic chang

> Most legal systems assume that it is better not to incarcerate a guilty individual than to incarcerate an innocent person (i.e., if you are making a mistake, at least choose the lesser of the two). As central banks can potentially make a mistake when bur

> Go to the St. Louis Federal Reserve FRED database, and find data on recession dating (USRECQ) and real GDP (GDPC1), real consumption (PCECC96), and real private domestic investment (GPDIC1). a) Using the recession dating series (USRECQ), when did the mos

> One of the possible solutions to asset-price bubbles is the enforcement of macro prudential regulation. Financial intermediaries have an incentive to constantly look for profitable opportunities, which often implies the design of new financial instrumen

> Suppose you are about to buy a car and ask to see a vehicle history report to check on previous accidents or problems reported for that car. When you are told that this information is not available, you decide not to buy the car. a) Do you think this exa

> One of the main characteristics of financial deepening is that more individuals participate in the financial system: more people open checking and saving accounts, and more firms rely on financial intermediaries as a source of funds. Comment on the effec

> Many policy makers in developing countries have proposed the implementation of systems of deposit insurance like the one that exists in the United States. Explain why this might create more problems than solutions in the financial system of a developing

> Financial regulators have been working to improve transparency and reduce risk in the derivatives market. How do you think increased transparency will affect financial intermediaries that trade derivatives? How do you think it will affect the overall per

> Gustavo is a young doctor who lives in a country with a relatively inefficient legal system and (probably as a consequence) an inefficient financial system. When Gustavo applied for a mortgage, he found that banks (he visited many) usually required colla

> In December 2001, Argentina announced that it would not honor its sovereign (government-issued) debt. Many investors were left holding Argentinean bonds that were now priced at a fraction of their recent value. A few years later, Argentina announced that

> Suppose you go to a bank intending to buy a certificate of deposit with your savings. Explain why you would not offer a loan to the next individual who applies for a car loan at the bank at a higher interest rate than the rate the bank pays on certificat

> Identify the type of asymmetric information problem described in each of the following scenarios: a) A loan officer requests information about your work and credit history before approving your car loan application. b) The same loan officer explains that

> Suppose a given country encourages its citizens to save 20% of their income and then allocates these funds through government owned financial intermediaries. As a result, many government officials get mortgages to buy expensive houses (and often default

> The production function for technology in Equation 8 can be expressed as At+1 - At = χ At αt Nt. Assume that χ = 1, that both N and α can vary over time, and that N is interpreted as the labor force rather than population. Go to the St. Louis Federal Res

> Microcredit programs (i.e., very small loans issued to the extremely poor) usually target a group of women and assign funds to them under the condition that decisions about the use of funds are made by all women in the group. How do you think this proced

> Suppose a firm has a great idea: overnight shipping. This idea will decrease costs for many businesses and will therefore result in a more efficient economy. If the entrepreneurs who create this concept cannot get funds to put their idea to work, what do

> The Taylor rule suggests that the policy rate target should be increased when the output gap is positive. Do you think the Taylor rule encourages or discourages demand-pull inflation? Which might be a limitation of the Taylor rule with respect to demand-

> The following table shows unemployment and inflation rates for Canada during the 1972–1982 period: a) Plot Canada’s unemployment rates during this period. On the same graph, draw a horizontal line at 7.3%, representi

> Assume that policy makers are using the Taylor rule as a basis for policy changes, as specified in Equation 1. Under each of the following scenarios, show how the real interest rate, output, and inflation behave in both the short and long run. Use an IS

> The following panels describe two different short-run aggregate supply curves. In which situation is the case for non-activist policy stronger? Explain why. (a) (b) XIX Inflation AS Inflation LRAS AS Rate, T Rate, T AD AD Aggregate Output, Y Aggrega

> Suppose one could measure the welfare gains derived from eliminating output (and unemployment) fluctuations in the economy. Assuming these gains are relatively small for the average individual, how do you think this conclusion would affect the activist/n

> The following table shows the inflation rate and output level for four consecutive periods in a given economy. In period 1, the economy is at its long-run equilibrium (i.e., the inflation rate equals its target and output equals potential output). In per

> The recent debate about healthcare reform in the United States included arguments about how the proposed reform might affect the efficiency of the U.S. economy. Based on the aggregate demand and supply analysis, do you think that a more or less efficient

> Suppose the current administration decides to decrease government expenditures as a means of cutting the existing government budget deficit. a) According to the aggregate demand and supply analysis, what will be the effect of such a measure in the short

> The Heritage Index, published yearly by the Heritage Foundation, provides a comprehensive numerical measure of overall economic freedom for countries and reflects the strength or weakness of institutions, political freedom, ease of doing business, and ru

> Suppose that f is determined by two factors: financial panic and asset purchases. a) Using an MP curve and an AS>AD graph, show how a sufficiently large financial panic can pull the economy below the zero lower bound and into a destabilizing deflationary

> In 2003, as the economy finally seemed poised to exit its ongoing recession, the Fed began worrying about a “soft patch” in the economy; in particular, it worried about the possibility of deflation. As a result, the Fed proactively lowered the federal fu

> According to the Reserve Bank of New Zealand Act of 1989 (section 8): “The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices

> Suppose that the President gets legislation passed that encourages investment in research and development of new technologies. Assuming this policy results in positive technological change for the U.S. economy, what does aggregate demand and supply analy

> The consequences of climate change on the economy is a popular topic in the media. Suppose that a series of wildfires destroys crops in the western states at the same time a hurricane destroys refineries on the Gulf Coast. a) Using aggregate demand and s

> An article in the Wall Street Journal reported that inflation-adjusted wages have slumped in recent years. Is this statement consistent with the aggregate demand and supply analysis of the recent U.S. economic crisis? Explain.

> According to aggregate demand and supply analysis, what would be the effect of appointing a Federal Reserve System chairman known to have no interest in fighting inflation?

> Suppose that in an effort to reduce the current federal government budget deficit, the White House decides to sharply decrease government spending. Assuming the economy is at its long run equilibrium, carefully explain the short- and long-run consequence

> Oil prices declined in the summer of 2008, following months of increases since the winter of 2007. Considering only this fall in oil prices, explain the effect on short-run aggregate supply and long-run aggregate supply, if any.

> Suppose that the White House decides to sharply reduce military spending without increasing government spending in other areas. a) Comment on the effect of this measure on aggregate demand. b) Show your answer graphically

> Go to the St. Louis Federal Reserve FRED database, and find data on the labor force, capital stock, GDP, and the price level for Turkey and South Korea, with data codes provided in the table below. Download each country’s data on a sepa

> Evaluate the accuracy of the following statement: “The recent depreciation of the U.S. dollar had a positive effect on the U.S. aggregate demand curve.”

> Suppose that Congress passes legislation that establishes a tax credit for small businesses and tax incentives for all businesses that invest in new plant and equipment. a) What is the anticipated effect of these proposals on aggregate demand, if any? b)

> Internet sites that allow people to post their resumes online reduce the costs of job searches and create opportunities for individuals looking for jobs to be matched with potential employers more quickly. Assume that these advantages of Internet job hun

> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1) and the GDP deflator (GDPDEF). Convert the deflator to the inflation rate by setting the Units setting to “Percent Change from Year Ago,” and download the data. a) Based