# Econonmics assignment

Answer all questions in details but do not answer question 1.  I don’t want no jokers so if you aint 100% sure that I will have an A or you can not deliver on time, please don’t touch my shit! I don’t mean to sound so crude but I’m tired of paying people and then end up getting a C. NO BS PLS!

ECON 201 –003, Assignment #4

Elasticity

Due Date: February 12, 2013 @ 13.00

1

Question 1: Market for lobster –Revisited Again (40 points)
Consider again the market for Atlantic lobster presented in Q#1 of the previous
assignments in the case where government imposed an excise tax that is officially
paid by the fishing industry.

1. Reconstruct the Demand and Supply curves to scale and show graphically
the equilibrium price P* and quantity Q* for lobster in the absence of quota.
(7 points)

2. Show again graphically the incidence of the excise tax (i.e. the portion paid
by consumers and producers), and indicate which party
(consumers/producers) pays the heavier tax burden (8 points)

3. Using the standard formula (not the midpoint), calculate the price elasticity
of demand ε

d
, and the price elasticity of supply ε

s
for this reduction and

indicate whether the demand/supply is elastic or inelastic on the respective
portion of the curve (15 points).

4. Do the calculated elasticities in question 3 provide support for your answers
to question 2? Explain fully the economic intuition behind this finding (10
points)

Question 2 (20 points)
Sketch the demand curve for the following individuals and fully explain the
demand relationship in each of the situations by considering the price elasticity of
demand.

1. I would never buy a Britney Spears CD! You couldn’t even give me one for
nothing.

2. I love coffee and I generally buy a bit more as price falls, but if price falls to
\$4/kg I will buy out the entire stock of the supermarket.

Question 3 (20 points)
The price elasticity of demand changes along a linear demand curve. Consider a
linear demand and a shift of the supply curve in each of the following scenarios.
Show along which portion of the demand curve (that is, the elastic or the inelastic
portion) the supply must have shifted in order to generate the event described. In
each case, show on the diagram the quantity (sales) effect and the price effect.

a. Recent attempts to stop the flow of illegal drugs into Canada have actually
benefited the drug dealers.

b. New construction increased the number of seats in the football stadium,
and resulted in greater total revenue from ticket sale.

ECON 201 –003, Assignment #4
Elasticity

Due Date: February 12, 2013 @ 13.00

2

Hint: Consider an extreme case of price elasticity for S curve in situation described
in 3b when you draw the graph.

Question 5 Cross-price Elasticity of Demand (20 points)
The following table lists the cross-price elasticity of demand for several goods,
where the percent quantity change is measured for the first good of the pair and
the percentage price change is measures for the second good.

Cross-price

elasticity of Demand

Air Conditioning units and kilowatts of electricity -0.34
Coke and Pepsi +0.63
High fuel consuming SUV and Gasoline -0.28
McDonald’s burgers and Burger King burgers +0.82
Butter and margarine +1.54

a. Explain the sign of each of the cross-price elasticities. What does it imply
about the relationship between the two goods in question? (4 points)

b. Compare the absolute values of the cross-price elasticities and explain their
magnitudes. For example why is the cross price elasticity for McDonald’s
and Burger King burgers less than cross elasticity of butter and margarine?
(2 points)

c. Use the information above to calculate how a 5% increase in price of Pepsi
affects the quantity of Coke demanded (2 points)

d. Use the information above to calculate how a 10% fall in price of gasoline
affects the quantity of SUVs demanded (2 points)