Chapter 6 Review Questions
1) Suppose that the U. S. were involved in a trade dispute with the European Economic Community over tariffs which they had imposed on our goods. If we wished to impose a retaliatory tariff on their goods, would it be more effective to impose the tax on their olive oil or on their beer? Explain your reasoning.
2) Would you expect the price elasticity of demand for a particular brand of breakfast cereal, such as “Wheaties,” to be higher or lower than the elasticity of demand for the total breakfast cereal market?
3)”At least half a dozen states and cities from Florida to Hawaii now impose $2 to $7 surcharges on car rentals. These fees can amount to as much as a 30% tax on 1day rentals.”
Explain why states and cities are tempted to tax car rentals at higher rates than other goods and services.
4)Why would two railroads seeking approval for a merger from the department of justice, present evidence that the cross price elasticity of rail and trucking freight services is high and positive?
5) Use the concept of demand price elasticity to explain why grocery store items are often available to shoppers who have “coupons” clipped from local newspapers at a lower price than they are available to shoppers who don’t have coupons.
6) Suppose that the following table shows the weekly visits to an amusement park as a function of the daily admission fee charged:
#visits daily fee
a)What is the price elasticity of demand when the daily fee is $20? When the daily fee is $40?
b)What is the elasticity of demand at the price that maximizes total revenue?
c)What price maximizes total revenue?
d)What is the arc price elasticity between the prices of $40 and $20 per day?