Question 1

1. A. Explain in detail the meaning of Substitute Goods.

B. Assume that Big Mac hamburgers and Whopper hamburgers are substitutes for each other. If the price of only Big Macs drops, what will likely happen to the demand for Whopper hamburgers, and why is this the case?

C. Explain in detail the meaning of Complementary Goods.

D. Printers and printer ink are complementary goods. If the price of printers rises, what will likely happen to the demand for printer ink, and why is this the case?

E. 1. Explain the difference between input prices and output prices.

2. Describe in detail the importance of understanding how prices are determined for the inputs and outputs of a firm.

Question 2

A. When the government imposes a tax on the sale of a particular good, the sellers try to pass the tax onto consumers by raising the price of the good sold. Assume you own a tire company, and the government decides to impose a $1.00 tax on each tire sold.

1. Based on the basics of supply and demand, explain what would likely happen to the price you charge and the quantity of tires sold.

2. Would the amount of the tax passed onto the consumer be greater when demand is elastic or inelastic? Explain.

B. 1. Explain how the consumer survey technique known as Conjoint Analysis is used by managers.

2. What advantages do managers gain from conjoint analysis?