Question

For each of the following scenarios, decide whether you agree or disagree, and then explain your answer. (a) Paddy farmers suffer declines in their total revenues when they become more productive as a group. [4 marks]

(b) Suppose the elasticity of demand for cocaine is -0.1 and the government succeeds in reducing supply substantially. As a result, buyers will now spend less on cocaine. [3 marks]

(c) Every Chinese New Year, vendors bring thousands of Chinese red lanterns to Malaysia. During the last two years, the market has been very competitive; as a result, price has fallen by 30 percent. If the price elasticity of demand were -2.0, vendors would lose revenues as a result of the price reduction. [3 marks]

Drawing diagram is not necessary, but will help.

Answer 1

a. Yes, i agree with this statement when group of farmers work together then definitely revenues of former will be decrease. obviously together working of formers will be more productively in work not in revenue. productivity depend on land if land is not increase then no matter how you group together.

b. elasticity of demand is measuring parameter, it defines as the degree to which the demand of goods and services varies with its prices likes total sales increase with decrease in price. it is key concepts to establish relationships between sales and price. the price of cocaine is. 1 means price increase and also government reduces the supply due to which buyers will not invest more money on the cocaine because there supply is less.

c. As elasticity of demand of Chinese red lanterns the price is decreased leads to more demands in market due to this vendors have to sell their product in less price in market lead to falken in their revenue.