IMBA Managerial Economics Homework
IMBA Managerial Economics Homework1 (Due:9/30)
1.In each of the following instances, discuss whether horizontal or vertical boundaries have been changed, and whether they were extended or shrunk.
a. General Motors divested Delphi Automotive Systems, which manufactures automotive components, systems and modules. b. Online auction service eBay acquired Skype, a provider of Internet telephony services. c. Following the September 11, 2001 attacks, the U.S. government established the Department of Homeland Security. The new Department took over the Customs and Secret Services from the Department of the Treasury and the Immigration Service from the Department of Justice.
Answer: a) Vertical boundaries shrunk. b) Vertical boundaries expanded (eBay customers can use Skype to communicate with each other). c) Horizontal and vertical boundaries of the Department of Homeland Security expanded.
2.In fall 2005, an ABC News poll reported that 46% of lower-income Americans (earning less than $100,000 a year) were angry about gasoline prices, while just 32% of higher-income people (earning $100,000 a year or more) were angry. Despite higher gasoline bills, just 22% of survey respondents said that they had reduced driving. However, 63% said that they would cut back on driving if gasoline prices rose above $3 per gallon.
a. Use a demand curve to explain why the proportion of people who would reduce driving is higher if the price of gasoline is higher.
b. Explain how people can adjust to higher gasoline prices by replacing their cars rather than driving less.
c. Why were relatively fewer higher-income people “angry” about high gasoline prices?
Answer:
(a) The demand curve for gasoline would slope downward. Hence, the higher is the price gasoline, the more people would reduce driving. (b) Cars differ in gasoline consumption. People can adjust to higher gasoline prices by replacing “gas guzzlers”
1.In each of the following instances, discuss whether horizontal or vertical boundaries have been changed, and whether they were extended or shrunk.
a. General Motors divested Delphi Automotive Systems, which manufactures automotive components, systems and modules. b. Online auction service eBay acquired Skype, a provider of Internet telephony services. c. Following the September 11, 2001 attacks, the U.S. government established the Department of Homeland Security. The new Department took over the Customs and Secret Services from the Department of the Treasury and the Immigration Service from the Department of Justice.
Answer: a) Vertical boundaries shrunk. b) Vertical boundaries expanded (eBay customers can use Skype to communicate with each other). c) Horizontal and vertical boundaries of the Department of Homeland Security expanded.
2.In fall 2005, an ABC News poll reported that 46% of lower-income Americans (earning less than $100,000 a year) were angry about gasoline prices, while just 32% of higher-income people (earning $100,000 a year or more) were angry. Despite higher gasoline bills, just 22% of survey respondents said that they had reduced driving. However, 63% said that they would cut back on driving if gasoline prices rose above $3 per gallon.
a. Use a demand curve to explain why the proportion of people who would reduce driving is higher if the price of gasoline is higher.
b. Explain how people can adjust to higher gasoline prices by replacing their cars rather than driving less.
c. Why were relatively fewer higher-income people “angry” about high gasoline prices?
Answer:
(a) The demand curve for gasoline would slope downward. Hence, the higher is the price gasoline, the more people would reduce driving. (b) Cars differ in gasoline consumption. People can adjust to higher gasoline prices by replacing “gas guzzlers”