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Homework answers / question archive / 1)With inelastic demand, A price increase reduces quantity demanded by a smaller percentage so that total revenue reduces
1)With inelastic demand,
A price increase reduces quantity demanded by a smaller percentage so that total revenue reduces.
A price decrease increases quantity demanded by a smaller percentage so that total revenue increases.
A price decrease increases quantity demanded by a smaller percentage so that total revenue reduces.
2)Consider figure 1. Suppose that figure I shows the market for blueberry muffins Which of the following can happen as a result of an increase in the price of lemon poppy seed muffins (assuming they are substitutes)? a) A shift in demand from dl to d2. b) A shift in supply from si to s2. c) A shift in demand from d3 to d2. d) A shift in supply from 3 to 52. 14- Quantity traded has increased and the price has decreased for ramen noodles (an inferior good). Which of the following explains this situation better? a) An increase in the price of a substitute b) A decrease in consumer income. c) An increases in the cost of production. d) None of the above. 15. If demand increases and supply decreases a) Quantity traded increases. b) Price increases c) Quantity traded decreases. d) Price decreases 16-Which of the following is correct: a) When the price elasticity of demand is equal to 0, the firm's total revenue is not affected by price changes. b) A firm's profit goes up if it charges lower prices than the market price when demand is perfectly elastic. c) A firm's profit goes up if it charges higher prices than the market price when demand is perfectly elastic d) None
Es the market for blueberry muffins. d. Which of the following can happen as d3 S3 $ 2 sl e B Figure 1 g umber of producers causes.
1)Option C is correct
When demand is inelastic price and total revenue follow each other which means if price decreases then total revenue decreases as well. this happens because as the price is decreased by a certain percentage the quantity demanded is increased by a smaller percentage so that overall total revenue declines.
2)
Question 13:
Answer: (a)
In the given case we are given the market for blueberry muffins.
It is given that there is an increase in the price of poppy seed muffins, which are considered to be the substitutes of blueberry muffins.
Substitute goods are those which can be used in place of each other.
So when the price of poppy seed muffins increase, consumers will buy more of blueberry muffins, and their demand will increase.
This increase in demand will shift the demand curve to the right.
This is depicted in through the figure, where the demand curve for blueberry muffins shifts from d1 to d2.
Question 14:
Answer: (d)
Inferior goods are those goods whose quantity demanded is positively related to their price. The consumers demand more of these goods when their price increase.
Also, a rise in the income of consumers leads to a decline in their demand.
In the given case, it is given that there is an increase in the total quantity traded of an inferior good in the market, and a decline in their price.
In this market of ramen goods it is possible when their supply is increased.
And none of the given options will lead to increase in supply of ramen goods.
As, increase in price of substitutes will affect demand of ramen noodles.
A decrease in income of consumers will increase the demand.
An increase in production cost will reduce the supply.
Question 15:
Answer: (b)
An increase in demand of a good will lead to rightward shift of the downward sloping demand curve. While a decrease in supply of a good will lead to leftward shift of the upward sloping supply curve.
This will lead to the interaction of new demand and supply curve at higher price, while the equilibrium quantity will be determined by the magnitude of change in both demand, and supply.
Question: 16
Answer: (b)
Elasticity of demand is used to depict the effectiveness of change in price of a good on the change in quantity demanded.
In the given case, when the demand is perfectly elastic, then as the seller charges lower price from its consumer, then there will be an increase in the profits of this seller.
This is because the consumer will be induced to buy products from the seller who is selling at lower prices.
