Solutions to Questions A-1 In cost-plus pricing, prices are set by applying a markup percentage to a products cost.
A-2 The price elasticity of demand measures the degree to which a change in price affects unit sales. The unit sales of a product with inelastic demand are relatively insensitive to the price charged for the product. In contrast, the unit sales of a product with elastic demand are s
demand curves of different groups. The firm encourages the self-selection by adjusting the quality and not the quantity of the good. This selection process will help the firm indentify the customer groups as seen through their spending patterns. Prices will need to be designed to attract more inelastic groups to pay higher prices. Third-degree price discrimination occurs when the firm charges dif
Effects of Congestion Tax
The simple solution of the congestion problem is to use a congestion tax because charging a fee to drivers using high traffic roads makes drivers avoid using the roads. However, there are not only benefits but also costs. Drivers who continually want to use the highway have to pay the congestion tax, for they can reduce their cost of time expenditure. However, also the
demand and exports.
Exports should rebound slightly provided that financial markets and world trade firm up. Stock market consolidation and the return of foreign investor confidence should have a decisive impact on capital inflows and accordingly on commissions charged in connection with mutual fund or private banking management. The return to better times for the car industry and the restoratio