Question

Explain fully the difference between an increase in demand and an increase in quantity demanded. Be sure to explain increase, not change or decrease. Provide at least four reasons for an increase in demand. Use appropriate graphs to illustrate your answer.

Compute the price elasticity of demand if price increases from $10 to $12 and quantity demanded falls from 600 to 400. Use the value obtained and a specific example to determine whether price must be increased or decreased to increase total revenue. Explain why. Note: Explain only how to increase total revenue, not decrease it.

Explain the concept of income elasticity of demand. How is it used to identify normal goods, luxuries, necessities, and inferior goods? Be as specific and logical as possible.

Why is a minimum wage such a popular government policy in most countries? Use your understanding of supply/demand analysis to explain the advantages of the minimum wage and the disadvantages of the minimum wage. Provide a graph to illustrate your answer. Be sure to use your graph and the laws of supply and demand to answer the question, not public opinion.

Answer 1

When own- price of a good increases , then it is increase in Q Demanded,down downward movement along the demand curve

When factors like income increase, decrease in taxes, increase in substitute good price & fall in complementary god price, then increase in demand, rightward shift of demand curve

Now as price elasticity of demand is greater than one, so demand is elastic , hence decrease the price to increase total revenue.

Income elasticity of demand is the percentage change in Q demanded as a response to percentage change in income

If income elasticity is less than one, then good is a necessity

If it's more than one, it's a luxury

If it's negative , then it's a inferior good, as income rise, Q Demanded falls.