Question

E) 1/3 percent decrease in the quantity demanded for Good X. ........ Supply ..... 8. For the diagram to the right, calculate the value of price elasticity of supply over the price range from $15 to $25. A) 0.8 B) 0.2 C) 0.0533 D) 1.25 E) 5 F) 0.2667 G) 1.333 H) 0.75 I) none of the above 8 quantity 24 9. If at the current price, demand is elastic, then decreasing the price will A) Increase total revenue B) Decrease total revenue C) Have no effect on total revenue. D) The effect on total revenue cannot be determined Price ($/unit) 10. Compare elasticity of demand to elasticity of supply at the equilibrium price and quantity. If adding a tax, we can say that 18 . since A) Demand is more elastic than supply, the consumer burden of the tax will be larger than the producer burden. B) Demand is less elastic than supply, the consumer burden of the tax will be larger than the producer burden. C) Demand is equally elastic as supply, their burdens will be equal. D) Relative elasticity cannot be determined. ...... . .... 200 400 600 800 Gadgets (units/week)

answer and explain

Answer 1

8) Use mid point method. When price rises from 15 to 25 quantity supplied rises from 4 units to 6 units

es = (Q2 – Q1) / [(Q2 + Q1)/2] / (P2 – P1) / [(P2 + P1)/2]

= (25 - 15)/((25 + 15)/2) divided by (6 - 4)/((6 + 4)/2)

= + 0.80

Select A

9) Option A. When demand is elastic, % change in price is less than % change in sales. Now since price is decreased, this implies that % fall in price is less than % increase in sales. We know that % change in revenue = % change in price + % change in sales. Hence when % fall in price is less than % increase in sales, it means that net effect on revenue is positive so it rises

10) Select B. Supply is flatter so it is more elastic (demand is less elastic). Hence consumers will bear a greater tax burden

Price ($/unit) 18 ... ..... . D... 200 400 600 800 Gadgets (units/week)