Question

Please answer the short answer questions below. Be brief and concise. Your grade will be determined as much by the clarity of your answer as its validity. (a) [10 points] Are you more likely to observe a student discount at a skateboard store or a coffee shop? Explain your answer. (b) [10 points] Explain why if you were a maple syrup producer belonging to the maple syrup cartel that you would have an incentive to sell more and not less syrup than the amount you are currently permitted to sell. (c) [10 points] Harold the Historian books a flight to Hawaii for a Christmas vacation at a cost of $250. However, right before Christmas Harold falls ill and can no longer go. The airline will refund the full price of any ticket for a cancellation fee of 80% of the purchase price. Harold tells you he is not going to cancel because the fee is ridiculous as it is nearly equal to the price of the ticket. Explain whether you think Harold should cancel his ticket or not and how the price of the ticket factors into that decision

Answer 1

a) We are more​ likely to observe a student discount at a coffee shop because in order to attract students coffee shop would offer discount. Whereas students who like to play would purchase skate board even without discount and those who don't wish to buy skate board, won't buy it even at a discount.

b) Maple syrup producer would have an incentive to sell more because the cost of production of maple syrup is less. More the quantity producer will sell, more the profits he will get.

c) If Harold cancels the ticket he would get back a sum of $ 50, i.e., 20 % of $ 250 after deduction of cancellation fee of $ 200,i.e., 80% of the purchase price. If the price of the ticket would have been higher more would be the refund amount and more likely Harold would have returned the ticket. The cost to be born by Harold for cancellations (like traveling cost, internet cost, etc.) also could dissuade Harold from cancelling the ticket.