Photo by Artem Beliaikin on Unsplash Production of boiler chickens (those raised for their meat, not eggs) in the US...
Principles level questions
Principles level questions
- Suppose the market price of a milkshake with a plastic straw is $2.00, in a competitive market. A small store sells 1,000 milkshakes per day at an average cost of $1.00 per milkshake.
- How much revenue and profit does the store receive?
- For environmental reasons, the store owner decides to switch to paper straws, which cost 2 cents more. How much revenue and profit does the store receive now?
- Now suppose that the store has pricing power in its small town, and faces a market demand curve with a price elasticity of 0.5. The store owner decides to pass the extra cost of the straw through to consumers. How much revenue and profit does the store receive now?
- Based on your answers, discuss whether it is easier for businesses with pricing power to adopt environmentally sound measures.
- Consider the national market for “drinks with straws.”
- Draw a supply and demand diagram for this market.
- How would you show the negative externalities from plastic straws on the diagram?
- Show how the equilibrium quantity and price change when plastic straws are banned.