1. Classify the relative Price Elasticity of Demand (Ep) (Elastic, Unitary or Inelastic) for each of the following products. Be sure to provide a complete and logical set of economic reasons that support the chosen classification of the price elasticity of demand.
a. Cable TV (Premium Channel Package)
. Electricity to power home uses (appliances, heating & cooling, computers, etc.)
c. Restaurant meals
d. U
an rail transit during rush hou
2. Using alternative values for the Income Elasticity of Demand (Ei) (Negative, Zero, Positive, or strongly Positive [Ei > 1.0]), classify the Ei for each of the following products as inferior, normal, luxury or neutral (sticky) goods. Be sure to provide a complete and logical set of economic reasons that supports the chosen classification of the income elasticity of demand.
a. A two-week vacation in Bermuda
. Purchasing a new vehicle
c. Second-hand clothes from a thrift store
d. Kitchen and household appliances
3. Using the co
ect relative value of the Cross Price Elasticity of Demand (Ex) (+, −, or 0) for each of the following products, please identify the expected economic relationship (complements, substitutes, or unrelated) between the following product pairs. Be sure to provide a complete and logical set of economic reasons that supports the chosen classification of the cross price elasticity of demand.
a. Fish and Chips (in the UK)
. E-books and E-Book Readers
c. Taxi Service and Uber Service
d. New furniture and New clothes
4. The MTA did a study on Cross Price Elasticity (Ex) to determine the sensitivity of MTA ridership to fees charged by Uber and Lyft. The study revealed this value:
Ex = +1.82
Given the above Ex value, should the MTA managers be concerned about its own ridership if Uber and Lyft both announce considerable fee decreases for their services? Why? Defend your answer.
5. A pharmaceutical company introduced a new life-saving medication onto the market. The company did a study on the Price Elasticity of Demand (Ep) to determine the sensitivity of consumers to changes in the price of the medication. The study revealed the absolute value of the Ep to be:
Ep = 0.095
Given the above Ep absolute value, what action is the pharmaceutical company likely to take to influence its total revenue from the sale of the medication? Why? Explain your reasoning.
6. When performing Linear Regression to estimate the Law of Demand in a market, please accurately explain the following procedures:
a. What is the role of the Ordinary Least Squares (OLS) procedure, and why is it considered to be a reasonable method of estimation?
. When using sample data to estimate a population-level relationship, why is it necessary to engage in hypothesis testing?
c. What are Type I and Type II e
ors, and why should researchers estimating demand relationships be concerned about these e
ors?
· Although I am not requiring a specific page length for each answer, I am expecting thorough answers that fully explain and defend your written response.
· Citations: You can reference the textbook itself as the source for your answers and also use notes from class. If you use additional outside sources, please document them, and defend why these outside sources are valid and appropriate.
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