Question

1. Kevin’s goal as a business manager is to increase total sales in dollar terms for his business. Should he raise or lower his prices?

a raise the prices if demand is elastic; lower the prices if demand is inelastic

b lower the prices if demand is elastic; raise the prices if demand is inelastic

c raise the prices regardless of whether demand is elastic or inelastic.

d lower the prices regardless of whether demand is elastic or inelastic.

2. The total amount spent on a service with an elastic demand will ______________ if supply decreases.

a One cannot tell without knowing the size of the change in supply.

b increase

c decrease

d remain the same

3. If supply increases, what will happen to the total amount spent on a product with an inelastic demand?

a increase

b decrease

c not change

d One cannot tell without knowing the size of the change in supply.

4. If buyers and sellers both expect future prices to increase, what will happen to the current equilibrium price?

a The current equilibrium price will decrease.

b The current equilibrium price will increase.

c The current equilibrium price will be unlikely to change.

d The current equilibrium price could decrease, increase, or remain the same.

5. A tax placed on a good will ______________ the quantity sold if demand is inelastic. A subsidy of production of a good will ______________ the quantity sold if demand is inelastic.

a increase; increase

b decrease; decrease

c increase; decrease

d decrease; increase

6. Suppose that an increase in income occurs at the same time the cost of producing an inferior good decreases. What will most likely happen to the price of the good?

a increase

b decrease

c not change

d One cannot tell.

Answer 1

1.

Answer b

Lower the price if the demand is elastic and Kevin can raise price of inelastic when demand is inelastic. This is because of the fact that increase in price will results smaller decrease in the quantity demanded. Thus total revenue can be increased.

2

Increase

The reduction in supply means lower price in the market. As price decrease, more will be demanded by the consumers.

3.

One cannot tell

The inelastic goods are those goods where larger changes in price leads to smaller changes in demand. In such a situation if supply increase, we can't actual tell the implications.

4

The current equilibrium price will increase. If buyer expect future price rise, the demand more goods currently and if producer reduces the supply if he expect future price level. As demand increase and supply decreases, current equlibrium price will increases.

5

Increase; decreases

Government can raise tax rate on product that have inelastic demand and reduce subsidy on the same products. Because increase in price level will leads to small decline in quantity demanded.

6

No change

The inferior goods are low priced goods. If cost of productions again reduces, the price of product remains same, because already the product is sold at low price.