Discussion on pricing decision on the basis of elasticity of demand.
1.Find the flaw in the following forecast:"In 2006 we predict that the demand curve for handheld PC`s will continue to shift leftward, which will tend to lower price and quantity.however, with a lower price, supply will also decrease, shifting the supply curve to th eleft. A leftward shift of the supply curve tends to raise price and lower quantity sold . we conclude that as 2006 proceeds, quantity sold will decrease but the price of hadn held pc `s may either rise or fall what is the mistake inlogic in the forecast?describe
2.Assume you own a barbershop/saloon. You are prefering lowering the price of either haircuts or alcoholic drinks .The actual elasticity of demand for haircuts is 1.36 and for alcoholic drinks is 0.62. which price should you lower.describe
3.A tariff I ssimply a tax on imports. Use our model of the excise tax(with diagram) to expain why domistic firms request that tariff? Consider both the domestic and the foreign country in your answer