Economic Week 1

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Chapter 1 Applied Problem 1

1. At the beginning of the year, an audio engineer quit his job and gave up a salary of $175,000 per year in order to start his own business, Sound Devices, Inc. The new company builds, installs, and maintains custom audio equipment for businesses that require high-quality audio systems. A partial income statement for Sound Devices, Inc., is shown below:

2010
Revenue
Revenue from sales of product and services $970,000

Operating costs and expenses
Cost of products and services sold $355,000
Selling expenses $155,000
Administrative expenses $ 45,000

Total Operating costs and expenses $555,000

Income from operations $415,000
Interest expenses (bank loan) $ 45,000
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Based on the information that there are plenty of oranges out there, demand will decrease if the price is too high which will drive the price to drop.

C. The American Medical Association announces that drinking orange juice can reduce the risk of heart attack.
This information will cause the demand for orange juice and orange products to increase. The supply stays the same which will not be able to support the demand in return causes prices to increase for orange products.

D. The price of Florida grapefruit falls.

The prices of Florida grapefruit falls will cause demand for orange to drop shifting to the left. This will cause the supply to increase due to lower demand for the product and eventually will causes prices to drop for oranges until equilibrium is reach
Problem 4:
Rising jet fuel prices recently led most major US airlines to raise fares by approximately 15 percent. Explain how this substantial increase in airfares would affect the following:
A. The demand for air travel.

The increase in airfare will causes traveling demand to decrease since people are finding out means to travel rather not travel as much anymore since they are not willing to paying for the higher price. B. The demand for hotels?

The demand for hotels will also decrease because less people are traveling for vacation due to rise in airfare. This will shift the demand curve to the right.

C. The demand for rental cars.

The demand for rental
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