Supply and Demand and Frequent Buyer Program

1003 Words Apr 21st, 2013 5 Pages
Chapter 2
Problem 16:
You are an assistant to a senator who chairs an ad hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over $15 million on related paperwork and compliance costs. Moreover, depending on the locale, telecom taxes can amount to as much as 25 percent of a consumer’s phone bill. These high tax rates on telecom services have become quite controversial, due to the fact that the deregulation of the telecom industry has led to a highly competitive market. Your best estimates indicate that, based on current tax rates, the monthly market demand for telecommunication services is given by Qd =250 - 5P and the market supply
(including taxes) is Qs = 4P - 110 (both
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The manager knows her products are normal goods. Given this information, construct the budget set for a consumer who has $150 to spend on bagels and other goods throughout the year. Does Einstein’s frequent buyer program have the same effect on the consumption of its bagels that would occur if it simply lowered the price of one dozen bagels by 3 percent? Explain.
Answer: The reduction in price effects some groups that are buying bagels. The ones who are effected are the ones who wants to spend below the 10 bagel limit for their budget. It also effects the people who are buying between 10-19 (getting 20-29) and the ones who are buying between 20-29 (getting 40-49). Since they get more from buying. It effects all since it is a normal good.
Chapter 5
Problem 11
In an effort to stop the migration of many of the automobile manufacturing facilities from the Detroit area, Detroit’s city council is considering passing a statute that would give investment tax credits to auto manufacturers. Effectively, this would reduce auto manufacturers’ costs of using capital and high-tech equipment in their production processes. On the evening of the vote, local union officials voiced serious objections to this statute. Outline the basis of the argument most likely used by union officials. (Hint: Consider the impact that the statute would have on auto manufacturers’ capital-to-labor ratio.) As a representative for one of the automakers, how would

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