# Qnt 561 Week 3

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PROBLEM SET 1 1. Use supply and demand analysis (including diagrams) to indicate the effect of each of the following events on the price and quantity sold (at retail) of gasoline. a) OPEC lowers oil prices. b) New federal regulations require refiners to further reduce emissions. c) Federal government imposes a price ceiling of \$2 per liter to stop price gauging d) Toyota launches a new superhybrid vehicle that gets 50 km per liter. e) The price of parking increases dramatically in a number of major urban areas. f) Resorts announce price cuts in reaction to light bookings so far year-end school holiday 2. Find a recent newspaper or magazine article that discuses recent price changes for a particular good,…show more content…
Desperate for revenue, the federal government legislature has finally decided to raise the cigarette tax. Currently the tax is 5 cents per pack. A tax analyst indicates that the elasticity of supply for cigarette is 5 and the elasticity of demand is -0.2 a) Suppose the tax is increased by 35 cents. How much of the tax would be paid by consumers in the form of higher price paid and how much would be paid by producers in the form of a lower price received? b) Assuming the government collected \$43 million in cigarette tax revenue last year. If the average price of a pack of cigarettes is \$2.50, calculate how much of an effect this tax increase will have on (1) quantity of cigarettes consumed and (2) cigarette tax revenue. 6. Sony cut the price of its 42” HDTV plasma TV from \$3000 in the first quarter of 2005 to \$2500 in the second quarter. Sales increased from 25,000 to 30,000 a) Based on this information, what is your best estimate of the price elasticity of demand? b) How valid is this procedure for estimating price elasticity of demand? When will it give reasonable estimates and when will it gives misleading one? c) Panasonic decided to hold the price of its 42” plasma TV at \$3000. Their sales fell from 15,000 to 12,500. What is your best estimate of the cross-price elasticity of demand for Panasonic plasma