Question

Class Date Einala a6. How does advertising signal to consumers that the product is a good one? a. By seeing famous people using the product, consumers infer that they too can be famoas. b Ry being willing to spend money on advertising, firms let consumers know the product is likely a good one since firms would not likely advertise a poor product. e. By making consumers laugh during commercials, firms are associating positive experiences with the product d. Without allowing consumers to actually use the product, it is not possible for firms to signal to consumers the product's quality. 47. Funsters, Inc, the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor, Toysorama, is mass-producing an excellent copy and plans to flood the market with their $ doll in six weeks. Funsters should a. "fight fire with fire" by decreasing supply of its doll for six weeks and then increasing the supply. b. increase the supply of its doll now before the other doll hits the market. c. increase the price of its doll now. d. discontinue its doll. 48. If muffins and bagels are substitutes, a higher price for bagels would result in a(n) a. increase in the demand for bagels. b. decrease in the demand for bagels. c. increase in the demand for muffins. d. decrease in the demand for muffins. Scenario 5-2 Suppose the demand function for good X is given by: Ca = 15-0.SP, -0.8P, where Qa is the quantity demanded of good X, P, is the price of good X, and P, is the price of good Y, which is related to good X. 49. Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the pric good Y decreases from $10 to S8, the cross price elasticity of demand is about a. 0.57, and X and Y are substitutes. b. -0.22, and X and Y are complements. c. -0.80, and X and Y are complements. d. -2.57, and X and Y are complements. 50. Elasticity is a. a measure of how much buyers and sellers respond to changes in market conditions. b. the study of how the allocation of resources affects economic well-being. c. the maximum amount that a buyer will pay for a good. d. the value of everything a seller must give up to produce a good. ngage Leaming. Powered by Cognero.

Answer 1

46. Ans - b) by being willing to spend money on advertising, firms let consumers know the product is likely a good one since firms would not likely advertise a poor product

47. Ans - b) increase the supply of their doll now before the other doll hits the market

48. Ans - c) increase in demand for muffins

49. Ans - d) -2.57, and X and Y are complements

Explanation:

When Py =10,

Q = 15 -0.5*10 - 0.8*10 = 2

When Py = 8

Q = 15 -0.5*10 - 0.8*8 = 3.6

So Q1 = 2

Q2 = 3.6

P1 = 10

P2 = 8

Cross price elasticity = {(Q2-Q1)/[(Q1+Q2)/2]} / {P2-P1/[P1+P2)/2]}

= [1.6/2.8] / [-2/9] = -2.57

As cross price elasticity is negative, X and Y are complements.

50. Ans - a) measures of how much sellers and buyers respond to changes in market conditions.

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