How does the price elasticity of demand affect a firm’s pricing decisions

1. Jane spends all her income on hot dogs and caviar. Her demand curve for caviar is inelastic at all prices for caviar. Unfortunately, the accident at Chernobyl has caused the supply of caviar to fall and the price to rise. What has happened to Jane’s consumption of hot dogs? Explain. (Note: You should assume that the accident at Chernobyl had no effect on the price of hot dogs or Jane’s preference for caviar.)

   2. How does the price elasticity of demand affect a firm’s pricing decisions? Give a real-life example of an actual company and a product or service that substantiates your response to this question.

3. Why is the U.S. GDP so much higher than that of Mexico? Would the same reasons apply when we compare the U.S. GDP to Canada’s GDP?

   4. You are the owner of a family-owned restaurant. You do not pay yourself a salary or an hourly wage. How and why does this practice affect the economic cost of serving your patrons?

   5. Walmart is one of the most commercially successful U.S. companies today. Relate what you have learned about costs to why Walmart has been so profitable. Has Walmart’s success come at any cost? What is the most serious charge against Walmart? What is the most significant benefit that Walmart offers?

   6. If the government were to make university attendance mandatory and subsi