sensitive to market prices. Given that, describe the effect of each of the
following on the quantity demanded or the demand for new autos in Japan.
Indicate whether the effect of each is an upward or downward movement along a
given demand curve or instead involves an outward or inward shift in the demand
curve for new autos. Explain your answers.
a. A decrease in the average price of new Japanese
automobiles.
b. A fall in Japanese interest rates.
c. A rise in the price of public transportation in Japan.
d. A rise in the price of food in the United States.
2. Suppose the demand for beer is characterized by the
following point elasticities:
own price elasticity = -2.5
cross-price elasticity with soda = +3
income elasticity = +2
Based on the given elasticities, answer the following.
Explain your answers.
a. If a firm in the industry wishes to increase total sales
revenue (ignoring cost considerations), will it raise or lower its selling
price? Why?
b. What happens to the demand for beer if the price of soda
falls by 2%? Explain your answer.
c. What happens to the demand for beer if consumer income
rises by 5%? Be specific.
d. Is beer a normal or inferior good? Explain
