Macroeconomics Answers

6. Joy’s Frozen Yogurt shops have enjoyed rapid growth in northeastern states in recent years. From
the analysis of Joy’s various outlets, it was found that the demand curve follows this pattern:
Q = 200 - 300P + 120I + 65T - 250Ac + 400Aj


a. What would be the effect of a $5,000 increase in the competitor’s advertising expenditure?
Illustrate the effect on the outlet’s demand curve.
b. What would Joy’s advertising expenditure have to be to counteract this effect?

A book store opens across the street from the University Book Store (UBS). The new store
carries the same textbooks but offers a price 20 percent lower than UBS. If the cross-price
elasticity is estimated to be 1.5, and UBS does not respond to its competition, how much of
its sales is it going to lose?

6. Joy’s Frozen Yogurt shops have enjoyed rapid growth in northeastern states in recent years. From
the analysis of Joy’s various outlets, it was found that the demand curve follows this pattern:
Q = 200 - 300P + 120I + 65T - 250Ac + 400Aj

where Q = number of cups served per week
P = average price paid for each cup
I = per capita income in the given market (thousands)
T = average outdoor temperature
Ac = competition’s monthly advertising expenditures (thousands)
Aj = Joy’s own monthly advertising expenditures (thousands)
One of the outlets has the following conditions: P = 1.50, I = 10, T = 60, Ac = 15, Aj = 10.
a. Estimate the number of cups served per week by this outlet. Also determine the outlet’s
demand curve.
b. What would be the effect of a $5,000 increase in the competitor’s advertising expenditure?
Illustrate the effect on the outlet’s demand curve.
c. What would Joy’s advertising expenditure have to be to counteract this effect?

When the iPhone was launched in the second quarter of 2008, it was priced at $599, and
Apple sold 270,000 units during this quarter. In mid-September of that year, Apple reduced
the price to $434, and sales rose to 1,119,000 during this next quarter. Without even doing
any calculation, these figures clearly show that Apple’s demand was very elastic. How reliable
do you think this estimate is? What other factors do you think should be taken into account
for a more complete assessment of iPhone’s elasticity? (http://theblogpaper.co.uk/
article/business/31may09/price-elasticity-demand-iphone)

A local supermarket lowers the price of its vanilla ice cream from $3.50 per half gallon to
$3. Vanilla ice cream (unit) sales increase by 20 percent. The store manager notices that
the (unit) sales of chocolate syrup increase by 10 percent.
a. What is the price elasticity of vanilla ice cream?
b. Why have the sales of chocolate syrup increased, and how would you measure the effect?
c. Overall, do you think that the new pricing policy was beneficial for the supermarket?

The equation for a demand curve has been estimated to be Q = 100 - 10P + 0.5Y, where
Q is quantity, P is price, and Y is income. Assume P = 7 and Y = 50.
a. Interpret the equation.
b. At a price of 7, what is price elasticity?
c. At an income level of 50, what is income elasticity?
d. Now assume income is 70. What is the price elasticity at P = 8?.

5. Mr. Smith has the following demand equation for a certain product: Q = 30 - 2P.
a. At a price of $7, what is the point elasticity?
b. Between prices of $5 and $6, what is the arc elasticity?
c. If the market is made up of 100 individuals with demand curves identical to Mr. Smith’s,
what will be the point and arc elasticity for the conditions specified in parts a and b

13-According to a study, the price elasticity of shoes in the United States is 0.7, and the income
elasticity is 0.9.
a. Would you suggest that the Brown Shoe Company cut its prices to increase its revenue?
b. What would be expected to happen to the total quantity of shoes sold in the United
States if incomes rise by 10 percent?.

14. A book store opens across the street from the University Book Store (UBS). The new store
carries the same textbooks but offers a price 20 percent lower than UBS. If the cross-price
elasticity is estimated to be 1.5, and UBS does not respond to its competition, how much of
its sales is it going to lose?

The equation for a demand curve has been estimated to be Q = 100 - 10P + 0.5Y, where
Q is quantity, P is price, and Y is income. Assume P = 7 and Y = 50.
a. Interpret the equation.
b. At a price of 7, what is price elasticity?
c. At an income level of 50, what is income elasticity?
d. Now assume income is 70. What is the price elasticity at P = 8?.

5. Mr. Smith has the following demand equation for a certain product: Q = 30 - 2P.
a. At a price of $7, what is the point elasticity?
b. Between prices of $5 and $6, what is the arc elasticity?
c. If the market is made up of 100 individuals with demand curves identical to Mr. Smith’s,
what will be the point and arc elasticity for the conditions specified in parts a and b

The teenager company makes and sales skate boards at an average price of $70 each.During the past year they sold 4000 of these skateboards. The company believes that the prices that the price elasticity for this product is about -2.5. If its price decrease to $ 63.what should be the quantity sold?will revenue Increase ?why?

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The growth rate in the fourth quarter of 2010 was 3.1%. What was the growth rate in the first quarter of 2011?


a) -3%


b) 1.2%


c) 1.9%


d) 5%