Question

TESTING YOUR ECONOMIC QUOTIENT 1. If McDonald's launches a successful ad cam. paign for Big Macs, what will happen to Big Mac B and C. Define as specifically as possible the type demand? Draw a graph to show this effect. What of good represented by each income elasticity. other determinants for demand are there? 2. Mabel Cranford cats only syrup with pancakes . What is the technical name for this relation $30 ship between syrup and pancakes? b. Suppose the price of pancakes goes up. L. Represent the effect of this price increase on Mabel's pancake demand curve. . Represent the effect of this price increase on Mabel's syrap demand curve. c. What can we say about the cross-price elas- ticity between syrup and pancakes for Mabel Cranford? 3. Based on the following graph, estimate the own- price elasticity between points A and B and the own-price elasticity between points B and C. Are they elastic or inelastic? Why are the elasticities different? To increase revenue, at least in the short run, would yon recommend a price increase or a price decrease? 6. The cross-price elasticity for hamburger demand with respect to the price of hamburger buns is -0.6. If the price of hamburger buns rises by 596, ceteris paribus, what change will occur for ham- burger consumption? What is the relationship of these goods? Why? 7. Assume that a retailer sells 1,000 six-packs of Pepsi per day at a price of $3/six-pack. You, as an eco- nomic analyst, estimate that the cross-price elasticity between Pepsi and Coca-Cola is 0.4. If the retailer raises the price of Coca-Cola by 10%, how would sales of Pepsibe affected. Why? 8. You 58 12 4. The Dixie Chicken currently sells 3,000 burger platcers per month for $7, and the own-price elas. ticity for this platter has been estimated to be -1.3. If Dixie Chicken raises prices by 70 cents, how many platters will be sold? 5. Calculate the income elasticity from the following graph between points A and B and between points For 10

Answer 1

AD o successful trice successful ad campaign for Big Macs by Mc Donalds will increase Advertising expenditure of Mc Donalds to for Big Macs. Increase in advertising expenditure will shift the demand curve for Big a Mais right words to old' in the diagram bela The diagram depicts DD as the initial demand curve for Big Macs. o successful and campaige mill shift the demand curve rightwards. to plo! due to increase in Quantity demanded at each rice level. Other determinants of demand are: i Income of consumer (1) brice of related goods Cinj Tastes and Preferences of consumer (C) Future price expectations of the good.