WRITTEN ASSIGNMENT
Replace these words with your LastName, FirstName Date:
Part I News article: "Coca-Cola has developed a soft-drink vending machine that adjusts the price according to the weather. Price rises during warm weather and decreases during cooler weather."
Think of a Coke machine in terms of market economics, that is, as having demand and supply. (You may find it helpful to illustrate for yourself.) Assume the supply curve is vertical to reflect that the machine gets refilled on some frequency, such as weekly. In other words, price does not affect quantity supplied.
a) Based on economics as studied in this course, what is the benefit to consumers of price increasing in hot weather? (Tip: imagine you and another person walked up to a machine and there was only one can left in it.)
b) The prevailing system of machines having just a fixed price, although not set by government, has what effect on pricing (causes the fixed price to effectively act as a what) during hot weather?
Note: this section (Part I) is not concerned with effects on the CocaCola company (such as sales, costs, profits, etc.), so do not address these. And, as mentioned above, assume that quantity supplied does not change with price. Also, note that the name, "Coke", is spelled with capital "C" . (Major points deduction for violating this!)
Part II Some years ago, the Harris County Toll Road Authority raised basic car tolls by 25 cents to $1.25 for cash payment and $1 for EZ TAG users. Six months later, there was a 23.8 percent increase in revenue compared with the same period the previous year. There were also 0.6 percent fewer motorists using the tollways than in the same six-month period the year before.
Was usage of the toll roads elastic, unitary, or inelastic?
Explain 2 ways the 6-month quantitative information (data) in the article back up your answer.
When calculating elasticity, use:
• the cash (not EZ Tag) data
• the general (definitional) formula, not the midpoint formula
Show your calculation (e.g., formula and numbers used).