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Chapter 5

Essay Questions

Elasticity
1) SA03 \ \\ Substitutes and Complementary Goods \ 1 \\ When you calculate cross-elasticity of demand, what are you trying to determine? What does a negative coefficient signify? A positive coefficient? Answer: You are trying to determine whether a pair of goods are substitutes or complements. A negative coefficient signifies a substitute while a positive coefficient signifies a complementary good. 2) SA03 \ \\ Price Elasticity and Fan Support \ 1 \\ Some sports fans support the home team regardless of how well the team does; others only buy tickets if the team is a winner. Demand grows as a team's record improves. Would you expect the price-elasticity of demand to rise or fall as a result of a winning season? That is, would you expect season ticket prices to rise more proportionally than other tickets as a team's record improved, or less than proportionally? Is the elasticity of supply of tickets to sporting events zero, or is it positive over the long run? Why? Answer: Speculation. Ticket prices probably rise more than proportionally as a team's record improves from poor to mediocre, and less than proportionally with a team's record as it rises from above average to league-leading. (No team can win all its games.) In the very short run, the supply of seats at sporting events is extremely inelastic. Over the long run, however, a stadium can be expanded or new, larger quarters for a team can be found if the demand for tickets appears to justify such expansion.

Ralph T. Byrns

Chapter 2 Scarcity in a Changing World

Essay Questions

3) SA03 \ \\ Inferior Goods, Normal Goods, and Luxury Goods \ 1 \\ Check the boxes on the right to indicate whether you think the following products are inferior (e y < 0), normal (0 < ey > 1), or superior (ey > 1) goods. Good Winnebagoes Compact American cars Canned vegetables Rice and potatoes Nissan 300ZX sport cars Tickets to horse races Lottery tickets (Do the poor buy disproportionately large shares?) Vacations to Hawaii College tuition Seeds for home gardens 4) SA03 \ \\ Substitutes and Complementary Goods \ 1 \\ How do positive and negative price cross elasticities relate to whether goods are substitutes or complements? Check the boxes on the right to indicate whether you think the following sets of goods will have price cross elasticities that are positive or negative. Pairs of Goods golf carts and country club dues steak and potatoes Corvettes and Mazda RX-7s heavy shoes and galoshes shoelaces and tennis shoes lobster and crab MacDonald's and Burger King professors and textbooks typewriters and computerized word processors video recorders and cable TV exy > 0 exy < 0 Inferio r Norma l Luxury

2006 EconomicsInteractive.com

Economics: Scarcity and Choice

Chapter 3
1.

Essay Questions Sample Answers

When you calculate cross-elasticity of demand, what are you trying to determine? What does a negative coefficient signify? A positive coefficient? Answer: You are trying to determine whether a pair of goods are substitutes or complements. A negative coefficient signifies a substitute while a positive coefficient signifies a complementary good.

2.

Some sports fans support the home team regardless of how well the team does; others only buy tickets if the team is a winner. Demand grows as a team's record improves. Would you expect the price-elasticity of demand to rise or fall as a result of a winning season? That is, would you expect season ticket prices to rise more proportionally than other tickets as a team's record improved, or less than proportionally? Is the elasticity of supply of tickets to sporting events zero, or is it positive over the long run? Answer: Speculation. Ticket prices probably rise more than proportionally as a team's record improves from poor to mediocre, and less than proportionally with a team's record as it rises from above average to league-leading. (No team can win all its games.) In the very short run, the supply of seats at sporting events is extremely inelastic. Over the long run, however, a stadium can be expanded or new, larger quarters for a team can be found if the demand for tickets appears to justify such.

Ralph T. Byrns

Chapter 2 Scarcity in a Changing World

Essay Questions

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