- Limit is 1.5 pages. Graphs are not required.
Good Price elasticity of demand (in absolute value)
Google Play Apps 3.7
Apple Store Apps 2.0
Lindt Chocolate 0.7
Ghirardelli Chocolate 1.3
Reese’s Peanut Butter Easter Eggs** 0.7
Reese’s Peanut Butter Cups** 3.9
Organic (dairy) milk 1.78
Non-organic (dairy) milk 1.02
Soy Milk 0.25
Organic Eggs 0.99
Non-organic Eggs 0.99
Expensive Spirits* 4.74
Cheap Spirits* 2.81
*Spirits are alcoholic beverages including brandy, vodka, rum, gin, and whiskey. Other alcoholic beverages like wine and beer are not considered spirits.
**Reese’s Peanut Butter Easter and Reese’s Peanut Butter Cups have identical ingredients
a. Google and Apple sell many of the same apps. What do you think explains the difference between the price elasticity of demand for apps at the Google Play store and the Apple store?
b. Suppose you work for a candy company. How can you use the information about the price elasticities of chocolate (the Lindt, Ghirardelli, and Reese’s products) strategically to increase revenues? I am not asking about using the price elasticities of chocolates to set prices, I am asking about using the price elasticities of chocolates to develop other strategies for your company.
c. Why is organic milk more elastic than non-organic milk? Why are organic eggs not more elastic than non-organic eggs?
d. Why is the demand for soy milk considerably less elastic than that of dairy milk? Which cross price elasticity would you expect to be higher, soy milk vs non-organic dairy milk or soy milk vs. organic dairy milk? Why?
e. Consider the expensive spirits and the cheap spirits. Are the price elasticities of demand what you would expect? Explain. Also explain why the price elasticities of demand are so different from each other.
- Limit 1.5 pages total. Graphs are required and count towards this limit.
From the article from the New York Times “Retailers Latest Headaches: Shutdowns at Their Vietnamese Suppliers”, by Sapna Maheshwari and Patricia Cohen
a. For the sake of simplicity, consider the market for jeans. Based on the information in the article, draw a supply and demand graph that illustrates what is happening in the market for jeans. Make sure to label your graphs and briefly explain any shifting of curves and/or changes in prices and quantities.
b. What will happen to the total revenue of Vietnamese clothing manufacturers? What will happen to revenue of companies like Everlane and Urban Outfitter? How do demand elasticities for jeans influence your answer? Explain. You may assume that supply and demand are straight lines.
c. Based on your analysis, compare the impacts of this supply chain issue on the following groups: consumers, Vietnamese garment workers, and Urban Outfitters. Who is impacted the most? Hint: Think analytically about prices, quantities, and take into account any possible mitigating responses by the affected groups. - Limit is 1.5 pages. (With Graphs)
The manager of a microchip (chip for short) manufacturing firm can choose from various production technologies and must determine whether or not to (a) move part of their production to a foreign plant, and (b) use the same technology in their foreign plant that they use in their domestic plant.
Chip manufacturers can produce using either sophisticated equipment and relatively few workers (prevalent choice in the US) or many workers and less complex equipment (prevalent choice abroad). U.S. chip firms have been moving much of their production abroad for many years. Worldwide sales of chips made in the U.S. dropped from 66% in 1976 to 34% in 1998, and to 17% in 2011, then rose slightly to 21% in early 2015. U.S. chip firms moved their production abroad because of lower taxes, lower labor costs, and capital grants provided by foreign governments. These grants reduce the cost of operating a foreign facility by as much as 25%, compared to the costs of running a U.S. plant. However, in 2012, China, Thailand, and other Asian countries substantially raised their minimum wages, which reduces the incentive of U.S. firms to move production to those locations.
Draft a one and a half-page memo to your CEO, in bullet format, advising her of the different cost and productivity issues involved in the decision of (a) moving part of the production abroad, and (b) choosing the same technology abroad as they do in the U.S. Use all class production/productivity and cost concepts that are relevant to consider in making this decision. - Limit is 1.5 pages. (With Graphs)
Consider (a) the economic model of maximizing net benefits discussed in class and (b) the human brain decision model (also discussed in class). Pick a decision from your own personal or professional experience (choose a reasonably important decision; not just whether to buy a piece of candy or not). Use both models side-to-side to analyze the decision. Illustrate the similarities and differences between the models as they apply to your decision. Are both models compatible with each other or not? If they are, under what assumptions or conditions? If they are not, what makes them different? Please explain carefully and feel free to use graphs and/or numbers (hypothetical or real) if they help you make your points. [Hint: Do not forget opportunity or other ‘hidden’ costs!]