1. A popular restaurant charges lower prices for alcoholic drinks in the late afternoon (4-6pm), but offers no such discounts at lunchtime or on weekends. What is different about demand characteristics for the same product at the same location but at different times on different days of the week? Does this pricing policy tend to increase the restaurant's revenues and profits? (hint: think elasticities)
2. Movie attendance dropped 8 percent as ticket prices rose a little more than 5%.
a. What is the price elasticity of demand for movie tickets?
b. Could price elasticity be somewhat overestimated from these figures?
Put another way, could other things have changed, accounting for some of the decline in attendance? Please identify these potential other factors
3. The Commerce Department is considering lifting the ban on the import of Brazilian oranges (the world's largest producer of oranges) into the United States. If a significant number of Brazilian oranges are allowed to be imported into the United States, show the impact on the following: (You can use demand and supply curves. In your explanation, be sure to distinguish between a change in demand and a change in quantity demanded and between a change in supply and a change in the quantity supplied.)
a. The equilibrium quantity and price of oranges in the US
b. The equilibrium quantity and price of orange juice in the US
c. The equilibrium quantity and price of tangerines in the US (assuming tangerines are a substitutes for oranges)
4. Imagine you are an author of a book who gets a royalty payment of 10% of the total revenues from the sale of the book. You get a phone call from your publisher telling you they are increasing the price of your book from $25 to $30. Should you be happy about this? Why or Why not?
What assumptions are you making about the change in quantity demanded of the book in your answer?
What elements/characteristics of the good (i.e., the book) will determine whether your assumption is valid?
5. Market approval in the US for new pharmaceutical products is a long, arduous, and expensive process. Once approved, patent protection keeps close substitute products from entering for some years.
a. If the demand for a particular product is stable, what would you predict for the profitability after approval and prior to patent expiration? Why?
b. What would you predict for the profitability of pharmaceuticals products after the patent expires? Why?
6. The North American Free Trade Agreement (NAFTA) provides for two-way long haul trucking across the U.S.-Mexican border. US truckers have objected, arguing that the Mexican trucks do not have to meet the same environmental and safety standards as US trucks. They are concerned that the combination of these lower fixed costs and lower Mexican wages will result in Mexican drivers taking business from them.
Their complaints have delayed implementation of this agreement.
What would be the short run and long run effects of allowing entry of Mexican drivers on market price and quantity of trucking in the US?
What would be the short run and long run effects on the number of truckers based in the US?