Question

1. What effect, if any, does each of the following events have on the price elasticity of demand for corporate-owned jets?

a. The cost of manufacturing corporate jets rises.

b. Reduced corporate earnings lead to cuts in travel budgets and increase the share of expenditures on corporate jet travel.

2. 3-D movies have been popular and charged at a higher price, compared with the traditional 2-D movies. Please analyze the impact of 3-D movies (in the language of economics) on

a. The price elasticity of demand on 2-D movies

b. The total revenue of movie theater box offices

Answer 1

Solution:-

Answer (1):- if the cost of manufacturing corporate jets rises. it will lead to price rise, and demand will decrease. Reduced corporate earnings leads to cuts in travel budget and increase the share of expenditure on corporate jet travel. we can not say what effect will take place. price elasticity may increase/decrease/unchanged.

Answer (2):- it is clear that demand for 3D movie is less elastic than demand for 2D movie. 3D movie charged higher price and its popularity creats band wagon effect so demand is also high that shows less elasticity. Now we can say that 3D movies have higher price and demand in comparison to 2D movie's price and demand. Total revenue = price time quantity.

TR= P*Q . P1 is price and Q1 is demand for 3D movie . P2 is price and Q2 is Quantity of 2D movie. then TR1 = P1*Q1

and TR2 = P2*Q2

Since P1>P2 and Q1 > Q2 so TR1 > TR2

Total revenue of box office of 3D movie will be higher than 2D movie.