1. You read in the paper a story about grapefruit markets. The story contains the following information:
A. There has been a frost in the “grapefruit belt” and a lot of lost plants.
B. There is a new kind of fertilizer that can increase yields by 20%.
C. The International Union of Grapefruit Pickers and Packers has just negotiated a contract with most growers calling for a 30% wage increase.
D. A new study indicates that grapefruit significantly reduces the risk of cancer and the Grapefruit Association is starting an ad campaign to inform consumers of this.
Take each of these (A-D) and use supply and demand analysis to determine the impact on price and quantity of grapefruits sold of each and the overall net impact. Also, discuss how this might impact the demand for other fruits and breakfast cereals. Also, make sure you discuss any impact of these on the elasticity of demand for grapefruits.
2. Define the concept of price elasticity of demand including the exact definition, how it is measured, and definitions of elastic and inelastic demand. Show how the definition is related to the slope of a demand curve and “perfectly elastic” or “perfectly inelastic” demand curves. What are the determinants of elasticity and how does elasticity related to price changes and consumer expenditures. How can the concept of elasticity be used in management decisions such as advertising, pricing and product design?
3. Define cross elasticity of demand and income elasticity of demand. Discuss how these two concepts can be used in analysis of demand for specific products and services and in demand forecasting.