Figure: Elasticiy and Total Revenue) Refer to the figure. If price falls from to

Question

Figure: Elasticiy and Total Revenue) Refer to the figure. If price falls from total revenue changes byso demand is Figure: Elasticity and Total Revenue 60 12 Q A) $120, inelastic B) $480; elastic C) S360; inelastic D) $120, elastic 24. If the market price is above the equilibrium price, which of the following will occur? A) Quantity demanded will exceed quantity supplied and the market price will B) C) D) eventually fall. Quantity demanded will exceed quantity supplied and the market price will eventually rise. Quantity supplied will exceed quantity demanded and the market price will eventually fall. Quantity supplied will exceed quantity demanded and the market price will eventually rise. 25. Which of the following would increase the demand for beef? A) lower pork prices B) higher consumer income C) higher prices of feed grains used to feed beef cattle D) an increase in the price of beef 26. Economists think that people are self-interested: A) only when monetary incentives are present B) because they respond to incentives in predictable ways. C) only rarely in response to incentives. D) unless they are being altruistic.

Explanation / Answer

23.

D.

Working note:

Elasticity = % change in quantity demanded / % change in price

Elasticity = ((12-6)/6)/((40-60)/60) = -3

Hence, the demand is elastic.

Change in revenue = 12*40 – 6*60 = $120 (there is an increase in revenue by $120)

24.

C

At higher than the equilibrium price, there will be surplus. it means that the supply will be more than the demand and put downward pressure upon the price.

25.

B

Higher income will push the consumers to demand more for the beef. It means that the demand curve will shift to the right direction.

26.

B

It is the behaviour shown by the people.

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