True, false or uncertain? Justify your response to the following statements. a)

Question

True, false or uncertain? Justify your response to the following statements.

a) In equilibrium, an increase in average income for a city decreases the market area for an average hair salon.

b) Electric cars dealers need electrical supply outlet stations and the stations need drivers of those cars to make a profit, just like car dealers who sell gas powered cars need gas stations and vice cersa. Assuming that the government passes no special rules related to these cars and stations, this situation is an exmaple of a self-reinforcing effect.

Explanation / Answer

(a) The percentage of income spent on hair cut is minimal in the budget of an individual. Therefore the elasticity of haircut is least. That is there is no change in the demand for the haircutwhen price changes. The same reason can hold when income of an individual goes up the expenditure on hair cut may not go up and the market area will neither decrease nor increase as those who need a haircut will have it. Therefore the statement is FALSE.

(b) The self reinforcing effect is when operant situations generally refers to those arrangements in which the subject delivers to himself a consequence, contingent on his behavior. The sale of electric cars will as a consequence will necessitate the setting up of electrical supply stations, which will drive out profits for drivers of these car. Therefore the situation is a self-reinforcing effcet. The statement is TRUE.

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