A C T I V E L E A R N I N G 1 Demand Curve

1. A C T I V E L E A R N I N G 1Demand Curve A. The price of iPods falls B. The price of music downloads falls C. The price of CDs falls Draw a demand curve for music downloads. What happens to it in each of the following scenarios? Why? 0

2. A C T I V E L E A R N I N G 2Supply Curve Draw a supply curve for tax return preparation software. What happens to it in each of the following scenarios? A.Retailers cut the price of the software. B.A technological advance allows the software to be produced at lower cost. C.Professional tax return preparers raise the price of the services they provide. 1

3. A C T I V E L E A R N I N G 1Calculate an elasticity Use the following information to calculate the price elasticity of demand for hotel rooms: if P = $70, Qd = 5000 if P = $90, Qd = 3000 2

4. The market for hotel rooms P S D 0 Q A C T I V E L E A R N I N G 2Effects of a tax Suppose govt imposes a tax on sellers of $30 per room. Find new Q, PB, PS, and incidence of tax.

5. Willingness to Pay (WTP) A buyer’s willingness to pay for a good is the maximum amount the buyer will pay for that good. WTP measures how much the buyer values the good. Example: 4 buyers’ WTP for an iPod CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS

6. P $ S D Q A C T I V E L E A R N I N G 1Analysis of tax The market for airplane tickets A.Compute CS, PS, and total surplus without a tax. B.If $100 tax per ticket, compute CS, PS, tax revenue, total surplus, and DWL. 5