Q4: Ch 6 (20%) Assume that the demand for plastic (cosmetic) surgery is price in
ID: 1161086 • Letter: Q
Question
Q4: Ch 6 (20%)
Assume that the demand for plastic (cosmetic) surgery is price inelastic. Are the following statements true or false? Explain.
a. When the price of plastic surgery increases, the number of operations decreases.
b. The percentage change in the price of plastic surgery is less than the percentage change
in quantity demanded.
c. Changes in the price of plastic surgery will affect the number of operations slightly. d. Quantity demanded is quite responsive to changes in price.
Q5: Ch 6 (10%)
The price elasticity of demand for imported whiskey is estimated to be ?0.20 over a wide interval of prices. The federal government decides to raise the import tariff on foreign whiskey, causing its price to rise by 30 percent.
Will the quantity demanded on imported whiskey rise or fall, and by what percentage
amount?
What is the percentage change in the total revenue after the tariff increases?
Explanation / Answer
4. Demand for plastic surgery is price inelastic.
A) The statement is true. With an increase in price of plastic surgery, the no. Of operations will decrease. This happens according to the law of demand, which shows that there is an inverse relationship between price and quantity demanded. But the change in demand is less than change in price because the demand is price inelastic.
B) The statement is False. This is because, in case of inelastic demand, percentage change in quantity demanded is less than percentage change in the price.
C) The statement is true. As the demand is price inelastic, change in price (even if by a large amount) affects the quantity demanded only slightly.
D) In case of inelastic demand, quantity demanded is only slightly responsive to changes in price. The statement is therefore false as it is stated that quantity demanded is 'quite' responsive, which means very much responsive.
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