1. the elasticity of demand for milk is -0.32. Therefore, an increase in the sup

Question

1.  the elasticity of demand for milk is -0.32.  Therefore, an increase in the supply of mil would result in:

higher milk prices, an increase in the demand for milk, a decrease in total revenue for milk producers, or none of the above?

2.  if you are operating an oyster bar down in the Florida Keys and you know that the income elasticity for oyster is +0.5, how much of a change in demand for oysters would you expect to occur if ther is a 10% increase in average household income?

20% decrease, 20% increase, 5% increase, or 5% decrease?

3.  assume that demand for bubblegum is -0.42.  if high sugar prices decrease the supply of bubble gum, what will be the impact on the total revenue of bubble gum producers?

total revenue will increase, decrease, stay the same, or not enough information to answer.

4.  which of the following is false?

income elasticities are usually larger for differentiated products that for commodities, income elasticites for food tend to be small but positive, higher income elasticities imply a larger movement along the demand curve in response to a change in consumers change, or income elasticities for food tend to be inelastic?

and lastly...

given that apples traded in the market this year will increase by 15%, elasticity of dmand is -0.64, elasticity of supply is 0.48, and income elasticity of apples is 0.24...

what is the percentage change in the price of apples due to the increase in crop?  as well as what is the total revenue of apple producers, in terms of an increase or decrease?  and explain how we know this?

Thanks!

Explanation / Answer

1) an increase in the demand for milk, as supply increase price falls and hence demand increase

2) 5% increase

3) total revenue will increase, when supply falls the price goes up and demand falls, but given that its inelastic, i.e 0.42 < 1, the revenue increases as the increase in price more than compensates for the decrease in demand

4) higher income elasticities imply a larger movement along the demand curve in response to a change in consumers change, it should be "in response to a increase in consumers income"

5) Income elasticity should not be considered as nothing abt income is mentioned.

hence the price rise to do additional supply changes the price by say x%, this resulted in change of demand by 15%

so the change in price is 15/0.64 = 23.4375%

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