Eco 365 Week 2 Case Assignment

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Week 1 - Case Assignments The text questions (in yellow) are from Managerial Economics and Business Strategy. In addition to the text questions, answer A1 and A2 below. Submit this assignment by uploading your answers as a WORD document that uses the requested file naming convention. A1. The demand in Japan for new automobiles is elastic and sensitive to market prices. Given that, describe the effect of each of the following on the quantity demanded or the demand for new autos in Japan. Indicate whether the effect of each is an upward or downward movement along a given demand curve or instead involves an outward or inward shift in the demand curve for new autos. Explain your answers. a. A decrease in the average price of new Japanese…show more content…
Explain your answers. a. If a firm in the industry wishes to increase total sales revenue (ignoring cost considerations), will it raise or lower its selling price? Why? The selling price would only increase because the absolute value of -2.5 is 2.5 which are greater than 1 meaning it is elastic and an increase in price leads to a reduction in total revenue. So, to increase total sales revenue, the firm should lower the selling price. b. What happens to the demand for beer if the price of soda falls by 2%? Explain your answer. The cross price elasticity with soda is considered to be rather high (3) therefore, if the price of soda drops, I think the demand of beer will stay the same. This elasticity measures the rate of response of quantity demanded of one good, due to a price change of another good. These two goods are not substitutes in my eyes. I think the demand of beer will decrease and the demand of soda will increase. c. What happens to the demand for beer if consumer income rises by 5%? Be

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