ONLINECO 

Exercise 8-14.Chapter 5.Elasticity and its application. Gregory Mankiw. Principles of Economics .

 

8. Consider public policy aimed at smoking.a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price? b. If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking one year from now or five years from now? c. Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?

 

9. Would you expect the price elasticity of demand to be larger in the market for all ice cream or the market for all ice cream or the market for vanilla ice cream? Would you expect the price elasticity of supply to be larger in the market for all ice cream or the market for vanilla ice cream? Be sure to explain your answers

 

10. Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was).A. What happens to the equilibrium price and quantity in each market? b. Which product experiences a larger change in price?c. Which product experiences a larger change in quantity?D. What happens to total consumer spending on each product?

 

11. Beachfront resorts have an inelastic supply, and automobiles have an elastic supply. Suppose that a rise in population doubles the demand for both products (that is, the quantity demanded at each price is twice what it was).A. What happens to the equilibrium price and quantity in each market? b. Which product experiences a larger change in price?c. Which product experiences a larger change in quantity?d. What happens to total consumer spending on each product?

 

12. Several years ago, flooding along the Missouri and Mississsippi rivers destroyed thousands of acres to wheat.a. Farmers whose crops, were destroyed by the floods were much worse off, but farmers whose crops were not destroyed benefited from the floods. Why? b. What information would you need about the market for wheat in order to assess whether farmers as a group were hurt or helped by the flood.

 

13. Explain why the following might be true: A drought around the world raises the total revenue that farmers receive from the sale of grain, but a drought only in Kansas reduces the total revenue that Kansas farmers.

 

14. Because better weather makes farmland more productive, farmland in regions with good weather conditions is more expensive than farmland in regions with bad weather conditions. Over time, however, as advances in technology have made all farmland more productive, the price of farmland (adjusted for overall inflation) has fallen. Use the concept of elasticity to explain why productivity and farmland prices are positively related across space but negatively related over time.