Question

The band Atomic Rooster has gotten back together and recorded a new album, "Home To Roost." Below is demand and supply information at different prices for downloads:

PRICE DEMAND SUPPLY

$4                    1400    50

8             1150     150

12                   900    250

16                     650 350

20                    400 450

24                     150 550

A) Using excel or done neatly by hand, draw demand and supply curves using the information above.

B) Label and state the equilibrium point and explain what it means.

C) If the supply curve shifts to the left, what could cause that? If it moves to the right?

D) If the demand curve shifts to the right, what could cause that? It it shifts to the left?

E) How would supply and demand change if the government set a price ceiling $3 below the equilibrium price?

F) How would supply and demand change if the government set a price floor $2 above the equilibrium price?

QUESTION 2

A) Independent of #1 above, Atomic Rooster sets a unit sales price of $10 and customers purchase 1,000 copies. Then they raise the price to $11 and customers purchase 500 copies. Calculate the elasticity of demand (show your work), then explain what it means and whether or not this change is compatible with their goal of maximizing revenue.

B) Starting with the same $10 unit sales price and sales of 1,000 units, say the band instead drops the price to $8 and sales rise to 1,100 units. Calculate the elasticity of demand (show your work), then explain what it means and whether or not this change is compatible with their goal of maximizing revenue.

QUESTION #3

A) Using a good of your choice, describe how you would create an inelastic demand for this.

B) Say you succeed in creating inelastic demand in A. How would your strategies for profit maximization change if the demand suddenly became unitary (neither elastic or inelastic)?

Answer 1