NUM1 An article in the Wall Street Journal reported that large hotel chains, such as Maiott, are...

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NUM1
    An article in the Wall Street Journal reported that large hotel chains, such as Ma
iott, are tending to reduce the number of hotels that they franchise to outside owners and increase the number the chain owns and manages itself. Some chains are requiring private owners or franchisees to make upgrades in their hotels, but they are having a difficult time enforcing the policy. Ma
iott says the upgrading is important because “we’ve built our name on quality.”
    a.     What type of agency problem is involved here?
    b.     Why would Ma
iott wo
y about the quality of hotels it doesn’t own but             franchises?
    c.     Why would a chain such as Ma
iott tend to own its hotels in resort areas, such as national parks, where there is little repeat business, and franchise in downtown areas, where there is a lot of repeat business? Think of the reputation effect and the incentive of franchises to maintain quality.
NUM2
    After Iraq invaded Kuwait, gasoline prices rose dramatically – up 50 percent. There were many effects of the increased price of gasoline. Explain the following effects in terms of the income effect, substitution effect, or both effects:
    a. People drove less and purchased less gas.
    b. People ate out less often.
    c. People had more tune-ups done on their cars.
    d. Bike sales went up.
    e. The sale of lottery tickets fell.
    f. People took vacations closer to home.
NUM3
    Recently, the House of Representatives passed legislation to increase the minimum wage in th nation from $5.15 to $7.50. What are the pros and cons of this proposal? Provide an analysis based on the demand and supply of labor.
NUM4
    Recently there has be a drive to increase the production of alternative fuels from corn. The argument used by many is energy self sufficiency. In light of the desire to reduce our use of foreign produced oil, many have suggested we should subsidize this production and shift to alternative fuels. Is this a good or bad idea from and economic view? If you say “Yes” or “No”, why, explain your answer using sound economic theory
NUM5
    Suppose you are the manager of a California winery. How would you expect the following events to affect the price you receive for a bottle of wine? Explain your answers.
    a. The price of a comparable French wine decreases.
    b. One hundred new wineries open in California,
    c. The unemployment rate in the United States decreases.
    d. The price of cheese increases.
    e. The price of a glass bottle increases significantly due to new government antishatter regulations.
    f. Researchers discover a new wine-making technology that reduces production costs.
    g. The price of wine vinegar, which is madde from the leftover grape mash, increases.
    h. The average age of consumers increases, and older people drink less wine

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David · Accepted Answer

Question Id TTs280617_621062_19  
NUM2 
After Iraq invaded Kuwait, gasoline prices rose dramatically – up 50 percent. There were 
many effects of the increased price of gasoline. Explain the following effects in terms of the 
income effect, substitution effect, or both effects:
The substitution effect is the basic Law of Demand which states that with the price rise, the 
quantity demanded falls. The income effect is related with the overall wealth of consumers. 
With more disposable income the consumer will purchase fewer inferior goods, and 
substitute higher priced normal goods.
a. People drove less and purchased less gas.
Income effect - Consumers buy less due to the higher price, they purchase less gas because of 
the price rise.
b. People ate out less often.
Income effect- Eating out less and driving less would make the consumers feel wealthier.
c. People had more tune-ups done on their cars.
Income effect - More tune-ups make consumers feel less wealthy, which could lead to some 
decreased demand.
d. Bike sales went up.
Income + Substitution effect - If we consider bikes as a substitute good for cars, then we 
could say the price of gasoline might fall a bit, and consumers buy more due to the lower 
price. Purchasing the bikes though would make consumers feel less wealthy, which could 
lead to some decreased demand for gasoline.
e. The sale of lottery tickets fell.
Income effect - Less lottery tickets purchased would make consumers feel wealthier, which 
could lead to some additional demand.
f. People took vacations closer to home.
Income + Substitution effect  - If consumers reacted to the higher price in taking vacations 
closer to home, then it would be a substitution effect. Small distance vacations would make 
consumers feel a bit wealthier, which could lead to some increased demand for gasoline.
NUM3 
Recently, the House of Representatives passed legislation to increase the minimum wage in 
the nation from $5.15 to $7.50. What are the pros and cons of this proposal? Provide an 
analysis based on the demand and supply of labour.
The Law of Demand does not only applies to goods and services,

NUM1 An article in the Wall Street Journal reported that large hotel chains, such as Marriott, are tending to reduce the number of hotels that they franchise to outside owners and increase the number...

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