Reference no: EM131442551

ASSIGNMENT

Part I. 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) Economically, what 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) economic question is being resolved by price increasing in hot weather in soda machines?

c) The prevailing system of machines having just a fixed price, although not set by government, has what effect on pricing (causes the fixed price to effectively act as a 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. Also, note that the name, "Coke", is spelled with capital " C" .

Part II. For each of the following items, identify whether it is included or excluded in calculating this year's GDP. In each instance, briefly explain why. (Note: since this course is not covering the "Measures of Income" and "Flow of Income" sections in Chapter 5, do not base your answers on that material.)

(a) An auto mechanic who fixes his own car at home

(b) Cash received from selling a corporate bond (excluding any broker commission, etc.)

(c) Spending by a city government on a waste-treatment plant

(d) The pleasure that people obtain from working at jobs they like

(e) A veteran's payment made to a retired military officer.