Econ 201 Second Exam Review 2008

# Econ 201 Second Exam Review 2008 - Page 1 REVIEW QUESTIONS...

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Page 1 REVIEW QUESTIONS: SECOND EXAMINATION 1. Using the data in the table below, calculate the price elasticity and income elasticity of demand for cell phones (remember the basic assumptions of such calculations): Time Period Quantity Sold Price of Cell Phone Consumer Income 1 50 \$50 \$30,000 2 60 \$50 \$35,000 3 70 \$50 \$35,000 4 80 \$60 \$40,000 5 90 \$65 \$40,000 6 100 \$70 \$45,000 E P = E income = 2. Prior to 1997, America Online (AOL) charged members a monthly fee determined by how long you were linked to AOL. Many customers used relatively slow dial-up modems to access AOL’s servers. Counting minutes was a customary chore much as with today’s cell phones. However AOL changed its pricing strategy and switched to a flat fee per month. Using supply-demand analysis, illustrate and explain what happened the month following AOL’s surprise announcement of its new pricing strategy. 3. Bargaining or haggling over price seldom occurs in the U.S., auctions being a notable exception (there are auctions for everything from U.S. Treasury Bonds – treasurydirect.gov – to millions of items on eBay). In terms of consumer and producer surplus, why does bargaining over price occur? 4. There is an economic reason why one-year old cars sell at a steep discount compared

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## This note was uploaded on 05/01/2008 for the course ECON 201 taught by Professor Vahaly during the Spring '08 term at University of Louisville.

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Econ 201 Second Exam Review 2008 - Page 1 REVIEW QUESTIONS...

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