Part I. Market Efficiency For each of the following scenarios, decide whether you agree or disagree and explain your answer. Make sure that your explanation is enough to make your points clear. a. Some studies suggested that price elasticity of demand for public education is about -1.72. And income elasticity demand for public education is 0.31. To increase revenue of public schools, the reasonable approach is to increase tuition because public education is a necessity. b. Following the above, the same studies found that the cross-price elasticity between private school tuition and quality public education is 0.32. This finding suggested that private schooling is a strong complement for public schooling. c. If the demand for Segway has unitary elasticity, or elasticity is -1, it is always true that an increase in its price will lead to more revenues for sellers taken as a whole. d. If the elasticity of demand for cocaine is -0.20 and the Drug Enforcement Administration succeeds in reducing supply substantially, causing the street price of the drug to rise by 50%, buyers will spend less on cocaine. e. Every year Christmas tree vendors bring tens of thousands of trees from the forests of New England to New York City and Boston. During the last two years, the market has been very competitive; as a result, price has fallen by 10 percent. If the price elasticity of demand was -1.3, vendors would lose revenues altogether as a result of the price decline.
Part I. Market Efficiency For each of the following scenarios, decide whether you agree or disagree and explain your answer. Make sure that your explanation is enough to make your points clear. a. Some studies suggested that price elasticity of demand for public education is about -1.72. And income elasticity demand for public education is 0.31. To increase revenue of public schools, the reasonable approach is to increase tuition because public education is a necessity. b. Following the above, the same studies found that the cross-price elasticity between private school tuition and quality public education is 0.32. This finding suggested that private schooling is a strong complement for public schooling. c. If the demand for Segway has unitary elasticity, or elasticity is -1, it is always true that an increase in its price will lead to more revenues for sellers taken as a whole. d. If the elasticity of demand for cocaine is -0.20 and the Drug Enforcement Administration succeeds in reducing supply substantially, causing the street price of the drug to rise by 50%, buyers will spend less on cocaine. e. Every year Christmas tree vendors bring tens of thousands of trees from the forests of New England to New York City and Boston. During the last two years, the market has been very competitive; as a result, price has fallen by 10 percent. If the price elasticity of demand was -1.3, vendors would lose revenues altogether as a result of the price decline.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter22: Frontiers Of Microeconomics
Section: Chapter Questions
Problem 4PA
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Transcribed Image Text:Part I. Market Efficiency
For each of the following scenarios, decide whether you agree or disagree and explain your
answer. Make sure that your explanation is enough to make your points clear.
a. Some studies suggested that price elasticity of demand for public education is about -1.72.
And income elasticity demand for public education is 0.31. To increase revenue of public
schools, the reasonable approach is to increase tuition because public education is a necessity.
b. Following the above, the same studies found that the cross-price elasticity between private
school tuition and quality public education is 0.32. This finding suggested that private schooling
is a strong complement for public schooling.
c. If the demand for Segway has unitary elasticity, or elasticity is -1, it is always true that an
increase in its price will lead to more revenues for sellers taken as a whole.
d. If the elasticity of demand for cocaine is -0.20 and the Drug Enforcement Administration
succeeds in reducing supply substantially, causing the street price of the drug to rise by 50%,
buyers will spend less on cocaine.
e. Every year Christmas tree vendors bring tens of thousands of trees from the forests of New
England to New York City and Boston. During the last two years, the market has been very
competitive; as a result, price has fallen by 10 percent. If the price elasticity of demand was -1.3,
vendors would lose revenues altogether as a result of the price decline.
1
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