Question

Use the following to answer questions 17-18 Pure Market for llamburgers hamburger 360 3.00 250 200 0. 0 NO 100 200 300 400 500 600 700 800 Quantity of hamburgers (per week) 17. (Figure: The Market for Hamburgers) The figure The Market for Hamburgers shows the weekly market for hamburgers in Irvine, Kentucky. If the price of a hamburger is stand 200 hamburgers are supplied, producer surplus will equal: A) S60 B) $65. C) $50. D) $360. 18. (Figure: The Market for Hamburgers) The figure The Market for Hamburgers shows the weekly market for hamburgers in Irvine, Kentucky. If 400 hamburgers are sold, producer surplus will equal: A) $650. B) $400 C) $510 D) $200 19. When a public transit system (such as a subway or bus line) raises its fares, its total revenue may increase. This suggests that demand is: A) perfectly elastic. B) price-inelastic. C) relatively price elastic D) price unit-elastic, Pages

Answer 1

17.

Consumer surplus is area below demand curve and above price

Producer surplus is the area below price and above supply curve.

PS=area of triangle

=0.5B*H

=0.5*200*(1-0.5)

=100*0.5

=$50

Hence option C is the correct answer.

18.

If Q=400

PS=0.5*B*H

=0.5*400*(1.50-0.50)

=200*1

=$200

Hence option D is the correct answer.

19.

Since the elasticity of demand can be defined as the measurement of the degree of the responsiveness of the quantity demand due to the change in the price level.

Price elasticity of demand= % change in the quantity demand/ % change in the price

If Ed is greater than 1, then the demand is elastic. If Ed is less than 1, then the demand is elastic.

Hence it can be said that when demand is elastic, then consumers are very responsive to change in the price and vice-versa.

When demand is inelastic, then with the rise in the price, the quantity demand is less affected. So quantity demand decreases by very little amount. So the total revenue will rise.

When demand is elastic, then with the rise in the price, the quantity demand is affected significantly. So quantity demand decreases by huge amount. So the total revenue will fall.

Hence it can be said that when a public transit system raises, its total revenue may increase. This suggests that demand is price –inelastic.

Hence option B is the correct answer.