1. Suppose there is an increase in the supply of a product. Rank the following o
ID: 1186276 • Letter: 1
Question
1. Suppose there is an increase in the supply of a product. Rank the following own price elasticity of demand classifications according to which has BOTH the largest effect on price and the smallest effect on quantity: perfectly (infinitely) elastic, elastic, inelastic, unit elastic, or perfectly (infinitely) inelastic. Diagrams may be useful.
2. If the own price elasticity of demand for beer is approximately unity, what would be the direction of the change (increase, decrease, no change) in total revenue, total cost and profits of an increase in price.
The change in the direction of total revenue is:_________________________________
The change in the direction of total cost is:_________________________________
The change in the direction of profits is:_________________________________
3. 11. The own price elasticity of demand for cigarettes is 0.5. Suppose all of the
cigarette manufacturers colluded to raise prices by 20%. Predict the direction of the change (increase, decrease, no change) in total revenue, total costs and profits of all companies combined if price were to increase.
The change in the direction of total revenue is:_________________________________
The change in the direction of total cost is:_________________________________
The change in the direction of profits is:_________________________________
4. Christmas toys at Thanksgiving time, Christmas toys on Christmas Eve
The product that is more elastic is ________________________
The own price elasticity of demand determinant(s) involved is/are_________________________________________________________________
Explanation / Answer
Q 1
i WHEN DEMAND IS PERFECTLY ELASTIC AND SUPPLY INCREASES THERE IS AN INCREASE IN QUANTITY SUPPLIED , BUT THE PRICE REMAINS THE SAME.
ii WHEN DEMAND IS ELASTIC AND SUPPLY INCREASES THEN THERE IS A DECREASE IN PRICE AND INCREASE IN THE QUANTITY SUPPLIED/DEMANDED. THE PRICE DECREASES BY A LOWER EXTENT AS COMPARED TO THE INCREASE IN QUANTITY.
iii WHEN DEMAND IS INELASTIC AND SUPPLY INCREASES THEN THERE IS AN DECREASE IN PRICE AND INCREASE IN THE QUANTITY SUPPLIED/DEMANDED. THE PRICE DECREASES BY A LARGER EXTENT AS COMPARED TO THE INCREASE IN QUANTITY.
iv WHEN DEMAND IS INELASTIC AND SUPPLY INCREASES THEN THERE IS AN DECREASE IN PRICE AND INCREASE IN THE QUANTITY SUPPLIED/DEMANDED. THE PRICE DECREASES BY THE SAME EXTENT AS THE INCREASE IN QUANTITY.
v WHEN DEMAND IS PERFECTLY INELASTIC AND SUPPLY INCREASES THERE IS A DECREASE IN PRICE , BUT THE QUANTITY DEMANDED/SUPPLIED REMAINS THE SAME.
Q 2 INCREASE
NO CHANGE
INCREASE
Q 3 INCREASE
NO CHANGE
INCREASE
Q4 CHRISTMAS TOYS AT THANKSGIVING
POSTPONEMENT OF CONSUMPTION/PURCHASE - THE DEMAND OF CHRISTMAS TOYS IS RELATIVELY INELASTIC AT CHRISTMAS EVE BECAUSE THE PURCHASE OF THESE TOYS CANNOT BE DELAYED.
I HOPE THIS HELPS.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.