Explore BrainMass
Share

# Economic Elasticity

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Under what elasticity conditions would the following be true:

"Increasing the minimum wage will result in a decrease in employment for workers who now earn less than the new minimum wage"?

https://brainmass.com/economics/employment/economic-elasticity-492605

#### Solution Preview

This is a controversial issue among economists. Many believe that an increase in minimum wage will cause unemployment, and others believe that the opposite is true. The Department of Labor conducted a study regarding this matter within the past few years, but many believe the study is biased to favor a minimum wage increase without being able to study the results of the increase in an unbiased manner, since it was conducted by the Department of Labor. When we consider elasticity of unemployment, we have to consider how changes in the ...

#### Solution Summary

Under what elasticity conditions would the following be true:

"Increasing the minimum wage will result in a decrease in employment for workers who now earn less than the new minimum wage"?

\$2.19

## The problem deals with estimating the elasticity measures of a certain product offered by the Kwikmeal service.

KWIKMEAL
After you complete your MBA, you decide to open a restaurant, named KWIKMEAL. KWIKMEAL is a fast food restaurant with a very limited menu. It serves only a steak sandwich on a whole-wheat roll plus a salad with any beverage of the customer's choice. Normally the sandwich, salad and beverage meal sells for \$12.00 and the average number of meals sold per month is 7,000.

However, KWIKMEAL would like to increase its volume, so this month it cut the price to \$10.00. With the price cut the sales volume of meals increased to 8,000.

QUESTION SET A
1. What is KWIKMEAL's elasticity of demand?
2. Is demand elastic, inelastic, or neither?
3. What does elastic, inelastic, or neither tells us about the elasticity of demand?
4. Why does this matter?
5. Have KWIKMEAL's profits increased or decreased because of the price cut?
6. by how much?
7. Was the price cut a success or failure?
8. What price should KWIKMEAL charge next month and explain why you chose the price? \$10.00 or \$12.00

QUESTION SET B
KWIKMEAL would be willing to sell this many meals per month 10,000 provided that the average price per meal is \$14.00

1. What is KWIKMEAL's elasticity of supply?
2. What number of meals is KWIKMEAL likely to sell at a price per meal of \$14.00?
3. Should KWIKMEAL change its price per meal to \$14.00? Why or why not?

QUESTION SET C
1. Airlines charge lower fares to flyers who make a Saturday night stopover, or who make flight reservations at least two weeks in advance. They charge even lower fares to standby passengers. Explain how these pricing policies relate to elasticity of demand.

2. Some stores give senior discounts and student discounts. Do these pricing policies relate to elasticity of demand in the same way that that the airline pricing policies above do?

Explain why they do or do not.

View Full Posting Details