Question

2. If know a market has price elastic demand. will draw the demand curve with a.

A relatively flat negative slope b. A relatively steep negative siope c. A relatively flat positive slope d. A relatively steep positive slope Suppose I tell you that the price elasticity demand for oranges is around 1.5, for bananas is around 0.7 for melons is of healthier (by eating more fruit and can only aff around 0.

3 We want people to eat to subsidize the price of one of the types of fruits (subsidizing will make the fruit expensive), Based on this information, we should focus on subsidizing Melons b. Bananas d. Subsidizing each of these fruits will have the same impact on the market Suppose a company does some market research and determines that the consumers of their products highly price inelastic.

4-Based on this knowledge, the companytan increase revenue increasing the prices of their products. a, True b, False

5. Suppose we are examining the market for property. Based on what we know about the elasticity of supply in this market, what outcomes do we expect increase in demand? a. Both price and quantity will increase, but the increase in quantity wi be the greater change b. Both price and quantity will increase, the increase in price will be the greater change c. Both price and quantity will increase by about the same amount d. Both price and quantity will decrease by about the same amount

6. Which of the following characteristics of a good would tend to make a consumer more price elastic? a. The good has few available substitutes b. The good is considered a necessity budget good is a relatively small part of consumers overall d. A and B would both make a consumer more price elastic e. A, B, and C would all make a consumer more price elastic

7. The income elasticity of a good that is considered a luxury item will be a (relatively large) negative number a. True b, False

Answer 1

2. If the market of a particular good has price elastic demand, then the market demand will be of A relatively flat negative slope. The slope is negative because price and quantity demanded of a commodity are negatively related and it will be flat because a small change in price of the commodity will change the quantity by a larger amount since its price elasticity is higher.

3. There should be more focus on subsidising melons because the price elasticity is very close to 0. So, people do not respond to changes in price level and the company is better-off subsidising melons.

Note than company can earn good revenue by subsidising banana also since its price elasticity is also low. But because it is still relatively higher than price elasticity of melon, so it is not the same thing to subsidise banana or melons, there will be a difference in total revenue.

4. TRUE. If the company finds out that demand of its product is price inelastic and it increases the price of the product, people will continue to buy same level of quantity Q and the total revenue which is defined as the product of price P and quantity Q (P*Q) will rise.

5. We know that supply elasticity of property is relatively inelastic (since, in response to price change, the property can be increased/decreased only to a certain extent). In such a case when there is an increase in demand -Both price and quantity will increase, the increase in price will be the greater change. The price and quantity will increase because more of it is demanded and change in price is more because after a certain level, quantity of the property can not be increased and then the limited quantity will be sold only at further higher prices.