Essentials of Economics
4th Edition
ISBN: 9781464186653
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Chapter 4, Problem 11P
To determine
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The market for organic and locally sourced foods has skyrocketed over the past decade as consumers focus on improving their eating habits. However, severe droughts have caused organic food prices to rise significantly, forcing many consumers to shop at conventional supermarkets (which are increasingly adding organic food options) instead of organic food markets such as Whole Foods. In response, companies such as Whole Foods have begun offering more nonorganic options on their store shelves in order to provide their consumers with more affordable options. Based on this response, what did companies such as Whole Foods realize about the elasticity of demand for organic foods that caused them to lower their prices by changing the type of foods they sell?
You are the manager of a firm that receives revenues of 50,000 AED per year from product X and 40,000 AED per year from product Y. The own price elasticity of demand for product X is −1.25 and the cross-price elasticity of demand between products Y and X is −1.5. How much will your firm’s total revenues (revenues from both products) change if you increase the price of good X by 2 percent?
The weekly demand for wine in the United States is described by the following equation:
Qd = 45,000,000 - 1,500,000P
where Qd is the weekly quatity demanded in bottles and P is the price per bottle in dollars. The weekly supply of wine in the United States is described by the following equation:
Qs = -5,000,000 + 1,000,000P
where Qs is the weekly quantity supplied in bottles and P is the price per bottle in dollars.
a. What is the equilibrium price and quantity for wine in the US?
Intense lobbying efforts result in the United States government establishing a $5 per bottle excise tax by wine producers.
b. What would be the new equilibirum price and quantity after the imposition of the per bottle excise tax?
c. Determine the total amount of the consumer surplus assuming the market for wine is in equilibrium after the imposition of the excise tax.
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