Managerial Economics Part 3

Question 1: 

Between 2008 and 2010, despite significant recent reductions in prices, the sales of automobiles declined world-wide, but especially in the United States.

Now, with this knowledge, critique the following two statements:

a)      Apparently the demand curve for automobiles is positively sloped.  How else could a reduction in price lead to a reduction in sales?

b)     This means that the price elasticity of demand for automobiles is highly inelastic, that is, unresponsive to price changes.

Question 2: 

Several years ago the University of Hawai’i decided to make some significant increases in the prices it charges for tickets to its football game.  UH announced that season ticket holders would be charged a “premium” of $35 to $200 per season, depending upon the seat location, for their tickets in addition to the regular price stated on the ticket.  The average ticket price for a season ticket holder had been about $20 per seat, per game.   UH believed these new prices would eliminate the $1.0+ million deficit it currently has in its intercollegiate athletics programs.   (It didn’t.)  Under what precise economic circumstances, e.g., concerning price elasticity, would UH actually have been able to reduce the size of its intercollegiate athletic financial deficit?

Question 3:

President Obama has not yet decided whether he will approve a new pipeline (the Keystone XL) that would carry newly produced oil from Canada into key distribution sites in the United States.    

 (A)          From an economic standpoint, what are the likely costs and benefits associated with the President’s decision insofar as the actual construction of the pipeline inside the United States is concerned?   (Ignore its subsequent use.)

(B)          Let’s move to the future.  Suppose the pipeline now is in operation.  Now, who bears the expected economic costs and benefits of the operation of this pipeline?  I.e., who benefits and who pays what costs?