hi ppl !

i have an assinment im stuck on, this particular question i cant do so if anyone can help plzzz do

Q: in response to increasing thefts by drug addicts, the government passes legislation increasing both the penalty and probability of punishment for suppliers of illegal drugs. what would you predict would happen to the rate of property crime committed by drug addicts if the price elasricity of demand for illegal frugs is -0.01 ? explain your answer

b) suppose that your firm was accused of illgal conspiring with other sellers to act as a monopolist. in searching for an expert witness, you discover one economist who has calculated the cross elasticity of demand for your industry's prodcut to be +0.43, while another econmist has calculated +2.05. which economist would you hire to testify on behalf of your firm ? explain your answer

c) why would a firm wish to have knowledge concerning the income elasticity of demand for its products ?

thanx in advance ppl !!

The government legislation has the effect of raising the supply curve for drugs. (At any given level, suppliers will want more money to cover the increased penalties for dealing). The demand for drugs is extremely inelastic (practically vertical demand curve). So, from the legislation, price goes up, quantity doesnt change, ergo, money spent by addicts goes up.

b) a low cross-price elasticity means a product does not have good substitutes. A high (positive) cross-price elasticity means a product has good substitutes. Regardless, of the actual elasticity, I would want to argue that monopoly power in infeasible because my good is easily substituted for something else.

c) plenty of reasons for knowing income elasticities. For example, should the firm open a shop in a sparcely populated but high-income part of a city?

a) To predict what would happen to the rate of property crime committed by drug addicts in response to the government legislation, we need to consider the price elasticity of demand for illegal drugs. The given price elasticity of demand is -0.01, which means that for every 1% increase in the price of illegal drugs, the quantity demanded decreases by 0.01%.

With a very low price elasticity of demand, it suggests that the demand for illegal drugs is highly inelastic. When the penalty and probability of punishment for drug suppliers increase, the price of illegal drugs would also likely increase. However, since the demand is inelastic, the quantity demanded by drug addicts may not change significantly.

As a result, even with the increased penalties and probability of punishment, the rate of property crime committed by drug addicts may not decrease significantly. This is because drug addicts may be willing to pay higher prices to fuel their addiction, despite the potential consequences.

b) The cross elasticity of demand measures the responsiveness of demand for a product to changes in the price of another product. For a firm accused of illegal conspiring with other sellers to act as a monopolist, it would want to hire an economist who has calculated a high cross elasticity of demand.

In this case, one economist has calculated a cross elasticity of demand of +0.43, while another economist has calculated +2.05. A positive cross elasticity indicates that the products are substitutes, meaning that when the price of one product increases, the demand for the other product increases.

To testify on behalf of the firm, it would be more beneficial to hire the economist who has calculated a higher cross elasticity of demand (+2.05). This indicates a stronger substitutability between the firm's product and other products, making it more difficult to argue for monopolistic power. The higher cross elasticity suggests that consumers have more alternative choices, making monopolistic control less feasible.

c) A firm would wish to have knowledge concerning the income elasticity of demand for its products for several reasons.

Firstly, income elasticity helps in understanding the sensitivity of demand for a product to changes in income levels. A high income elasticity of demand indicates that the demand for the product is highly responsive to changes in income. This information can help a firm assess the potential impact of economic fluctuations on the demand for its products.

Secondly, knowledge of income elasticity can aid in strategic decision-making. It can help a firm determine target markets based on income levels and adjust pricing and marketing strategies accordingly. For example, if a firm's product has a high income elasticity, it may focus its marketing efforts on higher-income segments to maximize revenue.

Lastly, income elasticity can provide insights into the nature of a product. For luxury or premium goods, a high income elasticity indicates that they are considered superior goods, as demand increases more than proportionately with income. On the other hand, products with low or negative income elasticity may be considered inferior goods, as demand decreases with increasing income.

Overall, understanding the income elasticity of demand allows a firm to better anticipate market dynamics and make informed decisions to optimize its sales and profitability.