Under which of the following conditions will an increase in demand cause a relat
ID: 1111114 • Letter: U
Question
Under which of the following conditions will an increase in demand cause a relatively small increase in price?
Select one:
a. All of the above.
b. If there is highly elastic demand, consumers are very responsive to changes in price.
c. If the shift of the demand curve is relatively small, the gap between the new demand and the old supply will be relatively small.
d. If there is highly elastic supply, producers are very responsive to changes in price.
A tax levied on coal-fired plants that is based on the amount of carbon released in the atmosphere is considered by the firm as a
Select one:
a. variable cost.
b. fixed cost.
c. source of revenue
d. sunk cost.
Marginal revenue is equal to price for a perfectly competitive firm because
Select one:
a. total revenue increases by less than the price of the good when an additional unit is sold.
b. firms can increase price and still increase the quantity sold.
c. firms need to lower price to increase the quantity sold.
d. total revenue increases by the price of the good when an additional unit is sold.
Explanation / Answer
Ans:
1) Option A
All of the above.
When the demand is elastic an increase in the price will cause a large reduction in the quantity demanded and as a result the excess demand will be eliminated with a relatively small increase in price. when thre is high elastic supply and If producers are very responsive to changes in price, the increase in a price resulting from excess demand will cause a large increase in the quantity supplied. As a result, the excess demand will eliminated by a relatively small increase in price.
2) Option A
Variable cost
Variable cost is the cost that changes with the level of output.The coal consumed by the firm and amount of carbon released in atmosphere changes with amount of production causing the amount of tax on coal paid by the firm to change.Hence it is a variable cost.
3) Option D
total revenue increases by the price of the good when an additional unit is sold.
In perfect competition firms sells at the same price no matter how much they produce. total revenue increases by the price of the good for every additional unit is sold. Hence price is equals to marginal revenue in perfect competition.
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