Question

3. Referring to the graph above, what can you conclude about the elasticity of the supply curve S, in comparison to supply curve $,7 a Supply curve S, is more inelastic than supply curve S b. Supply curve S is more elastic than supply curve S c. Both curves have the same degree of clasticity d. Supply curve S, is infininely elastic, and supply cuve S, is infinitely iselastie e. There is not enough information to answer the question. 36. Applying the midpoint formula, what is the price clasticity of demand if a drop in the price of energy drinks from $2 to S1 per can leads to an increase in the quanity demanded from 100 million to 150 million cans? a 0.5 b. -06 -0.9 37. A good with a vertical demand curve is a good with.. a porfectly inclastic demand b, unit-elastic demand c. price elasticity of one d. perfectly elastic demand. e unstable elasticity. 3B. Demand is unit clastie if a a 1% increase in price results in 1% decrease in quantity demanded b, a 1% increase in price results in a 1% increase in quantity demanded. c. a 1% increase in price results in no change in quantity demanded. d. a 1% decrease in price results ia an increase n quantity demanded of more than 1%. e. any increase in price results in a 1% decrease in quantity demanded. 39. The price clasticity of demand for cigarctes has boem estimated to be-0.4 in developed countrics ity tf cigarette producers raise their prices by 10%, what wil happen to the percent change in demanded It will increase by 4%. It will decrease by 0.4% Itu l decrease by 4%. a. b. c. e. I wont change 40. If firm A sells 25 units of good X for $8 cach, then total revenue is b. S17 С.$200 d $250

Answer 1

31. c

By definition, the demand for Giffen good goes up as the price is increased.

32. c

The inferior good is the one whose consumption decrease with increase in income. When the negative income effect is big enough to compensate the substitution effect, the demanded quantity will decrease as the price decrease and vice versa. That is, it will be a Giffen good.

33. b

$\eta = -\frac{\frac{\partial Q}{\partial P}}{\frac{Q}{P}}$

The numerator is constant and does not change along the linear line.

At point B, P has a higher value (in comparison with point A) and Q has a lower value (in comparison with point A). Therefore, the numerator's value (Q/P) is lower than that of Point A.

The value numerator at A and B is same. Denominator is smaller at B. Hence, elasticity will have a higher value at B.

Hence, elasticity is greater than 1 (but doesn't become infinite as denominator is not 0) and hence elastic is the correct answer.

34. c

By the same logic as in above answer, the numerator remains same and denominator increases. Hence, elasticity becomes less than 1. Hence, inelastic.

35. e

The elasticity is not defined for a curve, rather than at a point in the curve. Depending on the price or quantity in question, any of the curve can have a higher elasticity.

But, if the question is which curve is more elastic at point of intersection, curve S₂ is more elastic. This is because the value of denominator is same for both curves and value of numerator is higher for curve S₂

$\eta = -\frac{\frac{\partial Q}{\partial P}}{\frac{Q}{P}}$

36. b

$\eta =- \frac{\frac{\Delta Q}{Q}}{\frac{\Delta P}{P}}$

Ρ1.5

$\frac{\Delta Q}{Q} = \frac{50}{125}$

$\eta = -\frac{\frac{50}{125}}{\frac{1}{1.5}}= -\frac{75}{125} = -0.6$

37. a

The quantity demanded does not change irrespective of how much the price change is.

Hence, in the formula we saw above, denominator becomes zero and elasticity is 0. This typically happen for essential goods.

38. a

$\eta =- \frac{\frac{\Delta Q}{Q}}{\frac{\Delta P}{P}}$

When both denominator and numerator is 1, elasticity becomes 1. So, if price increase by 1% (+0.01) and quantity decrease by 1% (-0.01), elasticity becomes 1. And hence option a