Please select the correct option with explaining why it is correct ? 1-Suppose t

Question

Please select the correct option with explaining why it is correct?

1-Suppose that income elasticity of Starbucks coffee is 1.5. Then

A. Starbucks coffee is an elastic good and increasing the price would lower the revenue

B. Starbucks coffee is a luxury good and lowering the price would increase revenue

C. Starbucks coffee is a normal good and increasing the income by 2% will increase the demand by 3%

D. All of the above

2- If the government imposes a $500 tax per car on seller of cars and the demand for cars is equally elastic with supply, then the price received by seller of cars would

A. decrease by less than $250.

B. decrease by exactly $250.

C. dereases by more than $250.

D. increase by an indeterminate amount.

3. Whcih of the following statments is true?

A. Price ceiling above the equilibrium is binding

B. Price floor below the equilibrium is not binding

C. Price floor works like a legal drinking age while price ceiling works like a number of courses one has to take to graduate from college

D. Binding price ceiling creates a surplus

Explanation / Answer

1-Suppose that income elasticity of Starbucks coffee is 1.5. Then

C. Starbucks coffee is a normal good and increasing the income by 2% will increase the demand by 3%

Normal goods have a +ve income elsticity. As incomes rise, more goods are demanded at each price level.

2- If the government imposes a $500 tax per car on seller of cars and the demand for cars is equally elastic with supply, then the price received by seller of cars would

B. decrease by exactly $250.

3. Whcih of the following statments is true?

B. Price floor below the equilibrium is not binding

Explanation Price floor is the lowest price to be sold at. If the price floor is not above equilibrium, then the market won't sell below equilibrium and the price floor will be irrelevant. Hence it is not binding below the equilibrium

4-Which of the following scenarios is not consistent with the Laffer curve?

c. The tax rate is very high, and tax revenue is very high.

Explanation: The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue.

5- If consumer income increases and at same time vegetables used by Subway become cheaper, considering that Subway Subs are inferior good, then

B. Price of Subs decreases and the effect on quantity is unknown

Explanation: With increase in income the demand for an inferior good decreases and hence there will be a reduction in price

6- if the elasticity of demand is -0.75 then which of the following statements is true

A. if the manager wants to raise revenue he should offer a product ar a discounted price

Explanation: Since there is a -ve elasticity relationship, the quantity demanded will increase only if there is a reduction in price

7- suppose that you spend exactly $20 on Gatorade each week then Gatorade is considered a

D. Inelastic good

Explanation: Only for an inelastic good the demand wont vary with changes in price

8- suppose that the quantity of good A increases by 10% and the cross price elasticity between good A and good B is equal to 3, then

C. Example of goods A and B could be butter and margarine

Explanation: Both are substitutes. A +ve cross price elasticity denotes substitute products

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.