This activity will enable you to:

• Apply price elasticity of demand to product markets

You have read about the price elasticity of demand.

Discussion

Think of how price elasticity can be applied to public policy and revenue maximization for firms. Given the determinants of price elasticity, address the following questions.

• Can raising taxes on cigarettes prevent teenagers from smoking?
• How does price elasticity apply to the decline of teeth whitening services offered by dentist offices?
• Would it be smart for a grocery store manager to stick with a “middle of the road” pricing strategy for all products?

Part 2

This activity will enable you to:

• Use economic analysis in real-world situations

You have learned about public goods and public “bads”. You have also read about externalities and the government’s role in resource allocation in the face of such externalities.

Discussion

With reference to these economic principles, post a response to the following.

• Analyze the much-debated issue of global warming using the economic principles that you have learned.
  What role can the government play in reducing the emission of greenhouse gases? What role can individuals play?
• If you were the economic advisor in the government, what economic measures would you suggest to tackle global warming?

Answer preview

Part A

• How raising taxes on cigarettes prevent teenagers from smoking

According to Gullet, & List, (2003), tobacco taxation is a comprehensive strategy of tobacco control.  Numerous peer-reviewed journals affirm that tax increase in the cigarette reduces both the adult and teenage smoking.  Gullet, & List, (2003), asserts that an increase of the general cigarette by 10 percent reduces teenage smoking by 2 percent.  The rationale behind it is that an increase in the tax increases the price of the cigarette which makes it expensive for the teenagers to buy.  Therefore, raising a tax on cigarettes will reduce teenage smoking.  For instance, if the current tax is $10.3 per pack and the government…

 

(750 words)