31 Jul Economics supply/demand, inelastic diagrams required to the solutions
2) Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston.
| Price | Quantity Demanded (Business travelers) | Quantity Demanded (vacationers) | ||||
| $150 | 2,100 | 1,000 | ||||
| $200 | 200 | 800 | ||||
| $250 | 1,900 | 600 | ||||
| $300 | 1,800 | 400 | ||||
| a) As the price of tickets rises from $200 to $250, what is the price elasticity of demand for | ||||||
| (i) business travels and (ii) vacationers? (Use the midpoint method in your calculations.) | ||||||
| b) Why might vacationers have a different elasticity from business travelers? |
11) You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. Should you increase or decrease of admission? Explain
If you increase admissions, you may make more revenue per ticket but the increase in price exceeds what customers are willing to pay, it may turn away customers. Visiting a museum is not a necessity therefore selecting the correct price increase is paramount for this to be successful. If you raise the cost of the tickets by $3 for example, this may not turn away customers. With a $3 increase, this can remain inelastic.
Chapter 6 page 129, Questions for Review #6; page 130 Problems and Applications #8
6) How does a tax on a good affect the price paid by buyers, the price received by sellers, and the quantity sold?
8) A case study in this chapter discusses the federal minimum-wage law.
a) Suppose the min. wage is above the equilibrium wage in the market for unskilled labor. Using a supply-and-demand diagram of the market for unskilled labor, show the market wage, the number of workers who are employed, and the number of workers who are unemployed. Also show the total wage payments to unskilled workers.
b) Now suppose the secretary of labor proposes an increase in the minimum wage. What effect would this increase have on employment? Does the change in employment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither?
c) What effect would this increase in the minimum wage have on umemployment? Does the change in unemployment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither?
d) If the demand for unskilled labor were inelastic, would the proposed increase in the minimum wage raise or lower total wage payments to unskilled workers? Would your answer change if the demand for unskilled labor were elastic?
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