A. The price of iPods falls B. The price of music downloads falls C. The price of CDs falls A C T I V E L E A R N I N G 1 Demand Curve 0 Draw a demand.

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Presentation transcript:

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

A C T I V E L E A R N I N G 2 Supply Curve 1 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.

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

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

CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 4 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. nameWTP Anthony$250 Chad175 Flea300 John125 Example: 4 buyers’ WTP for an iPod

A C T I V E L E A R N I N G 1 Analysis of tax 5 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. D S P Q $ The market for airplane tickets