Questions

Q5.1 Is the economic demand for a product determined solely by its usefulness?

Q5.2 Assume that the price of Coca-Cola in soda machines is increased from 75tf to $1.50 per can, while the price of Pepsi and all other soft drinks remains the same. Is it likely to discover a negative value for the price elasticity of demand for Coca-Cola following such a price increase? Is it possible to find a positive value?

Q5.3 Name products for which you believe the price elasticity of demand might in fact be positive. What errors in demand analysis and estimation might lead to the erroneous conclusion that the price elasticity of demand is positive when in fact it is negative?

Q5.4 Describe how cents-off coupons can be used as an effective device for estimating the price elasticity of demand for grocery items. Why do retailers and manufacturers offer such coupons in lieu of across-the-board price cuts? Q5.5 Describe the income, substitution, and total effects on consumption following a price increase. Q5.6 Define each of the following terms, giving each a verbal explanation and an equation:

A. Point elasticity

B. Arc elasticity

C. Price elasticity

D. Cross-price elasticity

E. Income elasticity

Q5.7 When is use of the arc elasticity concept valid as compared with the use of the point elasticity concept?

Q5.8 Why is the price elasticity of demand typically greater for an industry than for a single firm in the industry?

Q5.9 Is the cross-price elasticity concept useful for identifying the boundaries of an industry or market? Q5.10 Individual consumer demand declines for inferior goods as personal income increases because consumers replace them with more desirable alternatives. Is an inverse relation between demand and national income likely for such products?

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