honeycfa

The price of product Z decreased from $2.50 per unit to $2.00 per unit.  Since the price decreased, demand has gone up from 3 million units to 4 million units.  Calculate the respective price elasticity of demand and determine the elasticity of demand.

A) ?1.29; inelastic.

B) ?2.00; elastic.

C) ?1.29; elastic.

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percentage change in quantity = [(4 ? 3)] / [(4 + 3) / 2] = 1 / 3.5 = 0.286 = 28.6%

percentage change in price = [(2 ? 2.5)] / [(2 + 2.5) / 2] = -0.5 / 2.25 = -0.222 = -22.2%

28.6 % / -22.2% = -1.29

Since the price elasticity of demand is greater than 1 (ignore the sign), product Z is elastic

honeycfa

If the number of widgets demanded changes from 51 to 49 when the price changes from $4 to $6, the price elasticity of demand is:

A) Elastic.

B) -2.00.

C) -0.10.

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Price elasticity of demand is calculated by dividing the percent change in quantity demanded by the percent change in price, using the average value of the variable in the computations. The percent change in quantity demanded is (51 – 49) / ((51 + 49) / 2) = 0.04. The percent change in price is (4 – 6) / (4 + 6) / 2 = -0.40. The price elasticity of demand is 0.04 / -0.4 = -0.10.

honeycfa

Suppose that the demand curve for soybeans shifts such that the equilibrium price of soybeans decreases 58%. At the new equilibrium price, the quantity that soybean suppliers are willing to provide decreases by 3%. Which of the following most accurately describes the respective elasticity of supply and relative elasticity for soybeans?

A) +19.33; inelastic.

B) ?0.05; elastic.

C) +0.05; inelastic.

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A perfectly inelastic supply curve is vertical (elasticity = 0). In this case, the elasticity of supply is close to zero. Therefore the supply of soybeans is relatively inelastic.

honeycfa

Which of the following most accurately describes elasticity of supply? Elasticity of supply is the percentage change in the quantity supplied divided by the percentage change in:

A) price and it equals zero when supply is perfectly inelastic.

B) price and it equals zero when supply is perfectly elastic.

C) quantity demanded and it equals infinity when supply is perfectly inelastic.

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Elasticity of supply equals zero when the supply curve is vertical, indicating perfectly inelastic supply.

honeycfa

Suppose that the demand curve for honey shifts such that the equilibrium price for a pound of honey increases from $7 to $9 per pound. At the new equilibrium, the quantity supplied increases from 500 pounds per month to 600 pounds per month, although the supply curve has not shifted. The elasticity of supply for honey is closest to:

A) +0.91.

B) +1.12.

C) +0.73.

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The average quantity of honey supplied is (500 + 600) / 2 = 550 pounds, and the average price of honey ($7 + $9) / 2 = $8 per pound. So, the percentage change in quantity is (600 – 500) / 550 = 18.18% and the percentage change in price is (9 - 7) / 8 = 25.00%. Thus, the elasticity of supply is 18.18 / 25.00 = +0.73.

honeycfa

Gene Bawerk, an economics professor, is lecturing on the factors that influence the price elasticity of demand. He makes the following assertions:

Statement 1: For most goods, demand is more elastic in the long run than the short run.

Statement 2: Demand for a good becomes more elastic when a close substitute for it becomes available on the market.

With respect to Bawerk’s statements:

A) only statement 1 is correct.

B) both are correct.

C) only statement 2 is correct.

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Both of these statements are accurate. Price elasticity for most goods is greater in the long run because individuals can make long-term decisions that require different quantities of the good, such as buying more fuel efficient vehicles to use less gasoline. Price elasticity is greater the better the available substitutes because an increase in price will lead more buyers to switch to the substitute products.

honeycfa

The demand for a product tends to be price inelastic if:

A) few good complements for the product are available.

B) people spend a large share of their income on the product.

C) few good substitutes for the product are available.

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If a large price change results in a small change in quantity demanded, demand is inelastic. Cigarettes are an example of a good with inelastic demand.

honeycfa

The demand for a product tends to be price inelastic if:

A) few good complements for the product are available.

B) people spend a large share of their income on the product.

C) few good substitutes for the product are available.

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If a large price change results in a small change in quantity demanded, demand is inelastic. Cigarettes are an example of a good with inelastic demand.

honeycfa

Economics commentator Gail Brythe is discussing the different factors that influence the elasticity of supply. She states the following:

Statement 1: Elasticity of supply is greater when a good or service can only be produced with unique or rare inputs.

Statement 2: Typically, a good’s momentary supply elasticity is higher than its short-run supply elasticity, which in turn is higher than its long-run supply elasticity.

With respect to Brythe’s statements:

A) only statement 1 is incorrect.

B) only statement 2 is incorrect.

C) both are incorrect.

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Both statements are incorrect. Elasticity of supply (i.e., the responsiveness of the supply of a good to changes in its price) is low when a good can only be produced with rare or unique inputs, because the potential output of the good is constrained by the availability of those inputs. Supply elasticity is lowest in the momentary time frame because producers typically cannot change the output of a good immediately. Supply becomes more elastic as the time frame increases because long-run adjustments in capital investment and technology lead to greater changes in profit maximizing output levels.

khaipinglai

 thanks