Author Question: Natural Gas Boom Technological improvements in hydraulic fracturing, or Fracking, have decreased the ... (Read 145 times)

kellyjaisingh · **on:** Jul 1, 2018

Natural Gas Boom Technological improvements in hydraulic fracturing, or Fracking, have decreased the cost of extracting smaller pockets of natural gas. What affect does this have on supply and demand as well as on the equilibrium price and quantity?

Question 2

Fashion Buyers II A buyer for a department store must decide on which designs the stores will carry before he knows what the demand will be in the coming season. Choosing a poorly demanded design means lots of unsold merchandise and losses that are 200,000 on average. Passing on a highly demanded design means lots of unsold merchandise and missing out on profits that are 300,000 on average. So long as he is more than 40 confident that the design will be successful, carrying the design will minimize expected decision error costs. Why might he opt to carry designs only if he is more than, say, 50 confident of success?

Animal_Goddess · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

Lower extraction costs will cause the supply curve to shift to the right. Consumers move down their demand curves to a lower equilibrium price and higher quantity consumed.

Answer to Question 2

The buyer is rewarded for making good decisions and has bonuses withheld when he makes bad decisions. Every time the store has to dispose of unsold merchandise, it is apparent that he made a bad decision. However, there may be instances where his supervisor is unaware that the buyer passed on what would have been a profitable design. These bad decisions go unnoticed. He will opt to avoid the errors that are noticeable even if it means committing more errors that go undetected.