- The president of a small company that provides vending machines services asks you, as the company economist, to forecast changes in consumer snack purchases associated with a proposed price change. You conduct a survey and find that if the price of a snack increases from $1.00 to $1.75, the quantity demanded will decrease by 10%.
a.Calculate the price elasticity of demand (please show all your calculations and formula you used)
b.Should the vending machine company raise its price? Explain the economic basis for this recommendation to the president.
c.By how much the quantity demanded has to decrease in order for your recommendation in part (b) to change. Explain.
- In the labor market, the demand and supply model predicts that new technologies could raise the pay of high-skill labor but reduce the pay of low-skill labor. Explain why wages will increase for skilled labor while real wages of low skill labor will decline? Draw a supply and demand for skill labor and low skilled labor showing how real wages will be impacted due to technological changes?