Assume that the Internet results in increased competition for the JSU Bookstore. Explain this (verbally and graphically) in terms of a change in elasticity of demand.

University of Chicago Prof. Austan Goolsbee and Yale University Prof. Judith Chevalier argue in a paper that price changes at one Internet site affect sales of both that retailer and its competitor. It considers sales at Amazon.com and BarnesandNoble.com, and finds that "[a] 1 percent price increase at BN.com pushes sales down 4 percent, making price rises a bad idea. By contrast, the same increase at Amazon reduces sales by only 0.5 percent — a net revenue gain." It concludes that Amazon.com has demonstrated it is possible to buld large base of customers who will not go to competition if prices are raised. Question: Fully explain this phenomenon in terms of elasticity. What factors probably go into making consumers less price responsive at Amazon.com's web site vs. Barnes and Noble's web site?

Many public colleges and universities have raised tuition in recent years. Will tuition increases result in more revenue? Under what conditions will revenue (a) rise, (b) fall, or (c) remain the same? Explain this in words, focusing on the increased relationship between the increased revenue from the students who enroll despite the higher tuition and the lost revenue from lower enrollment. If the true price elasticity for public university education was -1.2 (as suggested in a recent article), what would you suggest colleges do to expand revenue? Also, how do you suppose the supply and demand for higher education changes during a recession, if at all?

Define: unit elasticity. What do you think would happen to sales revenues if price fell in a market characterized by unit elasticity?

Explain elasticity measures along a linear demand curve. What is the relationship between elasticity and the slope of the curve?

Sue loves ice cream but cannot stand frozen yogurt deserts. Carole likes both and can hardly tell the difference between the two. Who will have the more elastic demand for yogurt?

What effect would the practice of obtaining prescription drugs from Canada on the Internet have on the elasticty of demand for prescription drugs? Why?

Assume that Joe's Bakery sells 130 pies at a price of $9, 110 pies at a price of $10, and 95 pies at a price of $11.
a. Calculate the absolute value of the arc elasticity of demand if Joe raised the price of pies from $9 to $10. Is demand in this range elastic or inelastic?
b. Assume that Joe lowers his price from $11 to $9. What is the arc elasticity of demand?

Assume that real incomes fell during the 1990-1991 recession by 10 percent, and that the demand for Yugos increased by 15 percent. Can you determine an income elasticity measure?

Your book notes that the measure of the income elasticity for food is 0.51. Why do you suppose that the measure is inelastic for this good? Would you expect it to increase if looking at specific categories of food? Why or why not?

What are the major determinants of a product's price elasticity of demand? Studies indicate that the demand for Florida oranges, Bayer aspirin, watermelons, and airfares to Europe are elastic. Why?

Detroit mayor Kwame Kilpatrick proposed last year a 2 percent fast food tax in Detroit, with the stated purpose of trying to alter the incentive to eat fast food (as opposed to the purpose of raising revenue). Is his proposal, if passed, likely to be successful? Will it raise much revenue? Answer in terms of elasticity of demand.

(Note: the tax proposal was rejected by Detroit voters, so Kilpatrick then proposed a state law that would impose the tax. It is worded in such a way that would only apply to Detroit. Read more here.)

Define: income elasticity, cross elasticity, and elasticity of supply. What signs would you expect for these measures? Why?

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If the quantity demanded of a product rose from 900 to 1,200 when the price of the product fell from $11 to $9, the arc price elasticity of demand coefficient is equal to
a. -0.20.
b. -0.70.
c. -1.0.
d. -1.42.

For which one of the following goods would you expect the demand to be most elastic?
a. gasoline
b. premium gasoline
c. unleaded gasoline
d. Exxon unleaded gasoline

The demand curve for cigarettes is likely to be
a. horizontal.
b. very flat (but not horizontal).
c. vertical
d. very steep (but not vertical).

John enjoys hockey games more than movies yet in a typical year he goes to 10 movies and 2 hockey games. This suggests that
a. John is clearly not maximizing utility.
b. if John is rational, hockey must be more expensive than movies.
c. if John is rational, movies must be more expensive than hockey.
d. the price of NASCAR races (a hockey substitute) has increased.
e. none of the above

Which one of the following goods would likely have the most elastic demand?
a. Kellogg's corn flakes
b. salt
c. a new Toyota automobile
d. fresh green beans

The price of a product falls from $15 to $10, and as a result the quantity demanded increases from 240 to 300 units. We can conclude that over this range the price elasticity of demand for the product is
a. elastic.
b. inelastic.
c. of unitary elasticity.
d. equal to -0.4.

If a 10 percent rise in airfares leads to a 5 percent increase in total expenditures on air travel, the price elasticity of demand for air travel in this range must be
a. 2.0.
b. elastic.
c. 0.5.
d. inelastic.

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is
a. elastic.
b. inelastic.
c. of unitary elasticity.
d. perfectly elastic.

A public goods article in today's New York Times: "We're Google, So Sue Us". (You may have to register to see the article. A good place to get usernames and passwords for newspaper web sites is at www.bugmenot.com.)

Here is an excerpt from the Wealth of Nations on greed and self-interest (in the story of the butcher, baker, and beggar). And here is a piece on the economics of crime (and how judges' incentives matter). An excerpt:

Steven Landsburg, an economist at the University of Rochester, has suggested one way of doing that. A judge would get a fat bonus for every suspect he released, and a stiff financial penalty if the suspect machinegunned anyone. The fatter the bonus, the more the judge will want to risk releasing subjects, and the more the system will favour liberty over public safety. Whether the bonus is small or large, however, the judge has a strong financial incentive to think carefully about which suspects are worth the risk to society - and his bank account.

But what Professor Landsburg may not have realised is that his wacky-sounding idea is already used in most states in America, albeit in a disguised form.

Water use is down to 1500 gallons per capita per day from the peak in the '70s of nearly 2000, and per-capita water use in the US in 2000 is lower than it has been since the mid-1950s, according to this research. Question: What are some of the economic explanations for this development?