Elasticity of Demand

(See attached file for full problem description)

---
Q1

Explain the value of using Elasticity of Demand to determine demand for a product.

Which type of elasticity is more valuable to a seller of a product, elastic, unitary, or inelastic?

Why?

Q2

Explain why credit cards are not really money.

Q3

Using the Income and Substitution Effects, explain the Law of Demand. Begin your discussion using an increase in price.

Q4

There is a lot of talk today about the increasing Federal Budget Deficit. What is / are the real burden(s) of a federal budget deficit?

Explain how an increasing federal budget deficit will affect how your employer makes economic decisions.

Q5

Analyze the following :

INDICATOR PERIOD COVERED PREVIOUS ACTUAL CONSENSUS FORECAST
Consumer Credit Outstanding April $5.7 Billion $5.9 Billion
Wholesale Inventories April +0.6% +0.5%
Initial Jobless Claims Wk Ended June 6 339,000 337,000
Import Price Index May +0.2% +0.8%
Treasury Budget May -$21.3 Billion -$61.2 Billion
International Trade April -$46.0 Billion -$44.5 Billion
PPI May +0.7% +0.6%

Put yourself in the position of Advisor to the Chief Executive Officer.

Interpret the information in the above table. Assume the movement from the Previous Actual to the Consensus Forecast has been the same for the past six months.

For each indicator state your interpretation of what is happening and the economic impact the change, if any, will have on the economy.

For example:

INDICATOR PERIOD COVERED PREVIOUS ACTUAL CONSENSUS FORECAST
Consumer Confidence Index November 98.3 103.6

The Consumer Confidence Index positive trend continues to show that manufacturers and businesses can anticipate continued growth in the economy. Sales of our product may be expected to show continued improvement. We may want to consider expanding our facilities to meet future demand.

This is an example only. Your answers should reflect your ability to interpret each indicator and apply the findings to the appropriate economic activity.

Provide a brief analysis such as above for each of the indicators in the Table noting which direction the indicator is moving and what effect this will have on economic activity that is related to the specific indicator in terms of business activity.

Your ability to apply economic theory and principles to this question is important.