NAME: ______

ECNS 251

Homework 4

Elasticity, Supply and Demand III

  1. Consider the market for EpiPens.
  1. If this market has very elastic supply and very inelastic demand, how would the burden of a tax on EpiPensbe shared between consumers and producers? Use the tools of consumer surplus and producer surplus in your answer.
  1. If this market has very inelastic supply and very elastic demand, how would the burden of a tax on EpiPensbe shared between consumers and producers? Contrast your answer with your answer to part (a).
  1. Suppose that the government imposes a tax on heating oil.
  1. Would the deadweight loss from this tax likely be greater in the first year after it is imposed, or the fifth year? Explain.
  1. Would the revenue collected from this tax likely be greater in the first year after it is imposed, or the fifth year? Explain.
  1. The cost of producing yoga mats has fallen over the past decade. Let’s consider some implications of this fact.
  1. Draw a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of yoga mats sold.
  1. In your diagram, show what happens to consumer surplus and producer surplus.
  1. Suppose the supply of yoga mats is very elastic. Who benefits most from falling production costs- consumers or producers of these yoga mats?
  1. Regular skiers at Bridger Bowl have noticed that the parking lot is full and the lift lines are long much more often this season than in earlier seasons. Lindsey, a regular Bridger Bowl skier, suggests that this is because the price of skiing at Moonlight Basin (a nearby ski resort) has risen. Shawn, another regular skier, suggests that it is because Bridger Bowl opened up two new lifts this year. Use supply and demand diagrams to illustrate Lindsey and Shawn's suggestions. What can we expect to happen to Bridger Bowl ski pass prices in the future if Lindsey is right? If Shawn is right?
  1. Suppose that MSU students have the following demand for on-campus tutoring services during a "regular" week of the semester and during "dead week" (the week before finals week).

Price
($/hour) / Quantity Demanded
(hours/regular week) / Quantity Demanded
(hours/dead week)
$15 / 1,000 / 2,000
$20 / 800 / 1,900
$25 / 600 / 1,800
$30 / 400 / 1,700
  1. In which type of week is the demand for tutoring higher? Why might that be the case?
  2. What is the price elasticity of demand for tutoring between P=20 and P=$25 during (i) a regular week and (ii) dead week?
  3. When is demand more elastic? Why might the elasticity differ across the weeks?
  1. In each case below, calculate the price elasticity of demand, characterize the elasticity (elastic, inelastic, unit elastic) and describe how the price change impacts total revenue.
  2. When price rises from $7 to $8, quantity demanded falls from 350 to 300 units per week.
  3. When price rises from $1 to $2, quantity demand falls from 20 to 10 units per week.
  4. When price falls from $25 to $20, quantity demanded rises from 1000 to 1050 units per week.
  1. In each case below, describe what will happen to total revenue.
  1. The demand for Yogi Herbal Tea is elastic. Producers lower the price of Yogi Herbal Tea.
  2. The demand for snow tires is inelastic. Producers raise the price of snow tires.
  3. The demand for taxi rides is inelastic. The introduction of Uber lowers the price of taxi rides.
  1. Read, "Germans get little in reward for booking their flights early," (The Economist, 11/27/2017) and answer the following:
  2. Why would prices of US domestic airline flights rise as the flight date/time gets closer?
  3. Offer an explanation for why waiting to buy a domestic flight ticket in Britain would save travelers money.
  4. How does the elasticity of demand for flights for vacationers differ from that of business travelers?
  5. Why would the penalty for waiting to buy plane tickets be larger "around holiday times"?
  6. The last paragraph on page 2 is obscured by an ad. What do you think it is likely to say? How does that relate to the elasticity of demand for flights among "sedate" academics versus "fast-moving" business people?

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