What is the benefit to consumers of price increasing in hot weather?Explain.

Assignment Questions

Part I (1/3). News article: “Coca-Cola has developed a soft-drink vending machine that adjusts the price according to the weather. Price rises during warm weather and decreases during cooler weather.”

Think of a Coke machine in terms of market economics, that is, as having demand and supply. (You may find it helpful to illustrate for yourself.) Assume the supply curve is vertical to reflect that the machine gets refilled on some frequency, such as weekly. (In other words, price does not affect quantity supplied.)

a) What is the benefit to consumers of price increasing in hot weather? (Tip: imagine you and another person walked up to a machine and there was only one can left in it.)

b) Which core (basic) question is being resolved by price increasing in hot weather in soda machines?

c) The prevailing system of machines having just a fixed price has what effect on pricing (causes the fixed price to effectively act as what) during hot weather ?

Note: this section (Part I) is not concerned with effects on the CocaCola company (such as sales, costs, profits, etc.), so do not address these. And, as mentioned above, assume that quantity supplied does not change with price.

Part II (1/3). Read the “Price Gouging” article..

Explain at least one possible economical detriment of (problem with) the current law (and any other detriments, but at least an economic one). Note: Retailers being able to pass on wholesale price increases is not considered detrimental and so should not be your answer. Also, do not use any terminology not already mentioned or defined in the textbook.
Part III (1/3). Read the “Tolls” article, and answer the following questions all based on the information for 6-months results:

a) Is usage of the toll roads elastic, unitary, or inelastic?

b) Explain 2 ways the 6-month information in the article back up your answer in a) above. Show calculation of elasticity. When calculating elasticity, use the cash data. Also, do not use the arc (midpoint) method; use the general (definitional) formula, instead.

Your writing can range from 1-sentence to brief-essay answers. You will be graded on grammar as well as your demonstrated knowledge of economics. The written assignment grading will count for 20% of your course grade