1)Does a very high long-run elasticity of demand in an industry necessarily imply that there is no public policy issue? 2)According to the law of demand, a monopolist's price elasticity of demand _____

1)A very high elasticity of demand means the product has a very elastic demand curve. This means that consumers in the market are very price sensitive. They will cut back on their purchases when the price rises and purchase a great deal more when the price falls. Typically, this type of demand is used to describe perfectly competitive markets where many firms are selling similar products and the consumer is indifferent to the products from different producers. This type of market is viewed a positive for consumers because firms will take the market price, which is usually low. This means that unlike a monopoly market which has a less elastic demand, there are less issues with market inefficiency. This is why there is not much regulation in markets facing a high demand elasticity.

The public policy issue that might arise from these types of goods could be a negative externality. If the production of the good causes pollution or other external effects on people who weren't part of the production or consumption of the product, there will be over production. This over production can be addressed with an excise tax, production permit or other forms of regulation.

2)According to the law of demand, a monopolist's price elasticity of demand is sometimes positive and sometimes negative and equal to 0 at the demand curve's midpoint.

The correct answer is B.

The price elasticity of a monopoly can either be negative or positive. When it is positive, the demand is said to be elastic and inelastic when it is negative. The essence of this assertion is that a monopoly only can maximize profits when its demand is elastic. In the inelastic range of the demand curve, a monopoly cannot maximize profits because the marginal revenue is negative at that point. When the marginal revenue is at zero, the demand is deemed to be unit elastic.