Scenario 5-4 ​

question 139

Essay

Scenario 5-4
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Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000.
-Refer to Scenario 5-6. Considering the cross price elasticity of demand for mobile and landline telephone service, is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?

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Definitions:

Corporate Governance

The system of rules, practices, and processes through which a company is directed and controlled, focusing on balancing the interests of its various stakeholders.

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The legal system of the United States, including its statutes, regulations, case law, and constitutional provisions.

Insider Trading

The unlawful activity where individuals trade on the stock market for personal gain using private, sensitive information.

Business Judgment Rule

A legal principle that protects the decisions of a corporate board of directors from judicial review as long as those decisions are made within their authority and with a reasonable belief that they were in the best interests of the company.