The following questions require additional reading/research into the topic ofCon
ID: 1249751 • Letter: T
Question
The following questions require additional reading/research into the topic ofConsumer Choices and Constraints. Your answer should be no more than half a pagefor each part.
(a) Read the following excerpt and answer the question below.
Celebrity Endorsements Help Boost Sales of Stereo Headphonesfrom Port Washington, New York, February 24, 201
Celebrity endorsements are usually big sales drivers in the fashion and fragrance worlds, butsome big names are also hoping to draw some big bucks for consumer technology,specifically for stereo headphones.
According to leading market research company The NPD Group’s new study Headphones:Ownership and Application endorsements are extremely/very important to nearly 30 percentof consumers when deciding what headphones to buy. Music artist endorsements rankedhighest among consumers purchasing headphones under $20 and over $100, and sales ofheadphones over $100 are growing. According to NPD’s Retail Tracking Service, headphones$100 or more went from around 2 percent of the headphone market in 2009 to 3.5 percent ofthe market in 2010. Overall stereo headphone sales increased 17 percent in units and 30percent in dollars in 2010.
Explain (from an economic perspective) why demand for stereo headphones mightincrease if the product is endorsed by a celebrity.
(b) Molly received an autographed poster of David Hasselhoff for her 21st birthday.Her friend Helga offered her $50 for the poster, but Molly refused to sell the postereven though she knows she would never pay that much to replace it if it was everdamaged or destroyed. Explain this inconsistency in Molly’s behaviour.
(c) The table below shows different combinations of hamburgers and hot dogs thatMax can buy. He can buy any possible combination listed (A, B, C, D, or E).
Possibility Hambergers (per day) Hot dogs (per day)
A
0
8
B
1
6
C
2
4
D
3
2
E
4
0
Label the x-axis “Hot Dogs” and the y-axis “Hamburgers” on the graph similar to theone provided below. Plot all possible combinations given in the table above and drawa line to connect these points (A to B to C etc). Label this curve that you have drawnMax’s budget line in the figure. Answer the following questions
(a) If Max’s income is $8 per day, what is the price of a hot dog? What is the price ofa hamburger?
(b) What is the slope of the budget line? How is the budget line similar to theproduction possibilities frontier?
Possibility Hambergers (per day) Hot dogs (per day)
A
0
8
B
1
6
C
2
4
D
3
2
E
4
0
Explanation / Answer
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