Chat with AIExam 3: Markets
Suppose fish steak and spaghetti are the only alternatives available during lunch hours at an office cafeteria.If a nominal change in the price of fish steak brings about a prominent change in the demand for spaghetti we can conclude that the latter has a high demand elasticity.
(38) 
VerifiedTrue
Illustrate the concept of price elasticity of demand?
(42) VerifiedSupply and demand curves can predict how equilibrium will change after some demand or supply shift, but we may also want to know the likely size of the change.For that we require a measure of how quantities demanded or supplied respond to changes in price.Along any demand curve its elasticity is defined as:
ED = (Percentage change in quantity demanded)/(Percentage change in price).
In other words, elasticity is ED = (∆Q/Q)/(∆P/P).For small changes the percentages will not be very different, depending on which point you call "1" and which you call "2." Because the numerator and denominator have opposite signs, elasticity is actually negative.But because demand curves slope downward, economists usually eliminate the minus sign and treat elasticity as positive.Elasticity also allows us to determine whether a change in price raises or lowers the total amount buyers spend on the good (or sellers receive as income).We can show that in a region of the demand curve where ED > 1, a rise (fall) in price lowers (raises) total spending, and where ED < 1, a rise in price lowers it.In a region where ED = 1, spending does not change with price.We usually say that demand is elastic if ED > 1, inelastic if ED < 1, and unit elastic if ED = 1.Elasticity generally varies when moving along a demand curve, even if it is a straight line.For example, the following figure portrays the demand curve given by the equation Q = 32 - 1.5P.
Total spending on the good equals price times quantity, shown as the area of the rectangle under the demand curve.(Price is the height and quantity is the base.) An increase in price from $13 to $13.50 (a range where elasticity exceeds 1) reduces total spending from $162.50 to $158.63.An increase from $6.00 to $6.50 (where elasticity is less than 1) increases it from $138.00 to $144.63.The rectangle whose height is $13.50 has a smaller area than the one whose height is $13.00, but the reverse holds when comparing the rectangle whose height is $6.50 with the one whose height is $6.00.
Suppose a consumer is willing to pay a maximum of $45 for a brand of perfume whose price increases from $37 to $41.What will be the impact of this price rise on the consumer surplus?
(32) VerifiedD
An increase in the supply of oranges in a town drives down its price by 5 percent.Which of the following changes will be observed in the market?
(37) Which of the following was an effect of the affordable housing law in the cities Palo Alto, Laguna Beach, and Irvine?
(33) If cheese spreads and butter are substitutes, an increase in the price of butter will:
(35) In the figure given below the government imposes a price ceiling on wheat at $6 per bushel which is below the market-clearing price of $8.D₁ and D₂ are the demand curves for wheat of Jane and Jolly respectively and DM is the market demand curve for wheat.A total of 40 bushels of wheat is available in the market and each of the consumers have been issued a tradable coupon for 20 bushels of wheat.
-Refer to Figure. Which of the following situations would arise if the price of the coupon is above its equilibrium price?
-Refer to Figure. Which of the following situations would arise if the price of the coupon is above its equilibrium price? (28) An increase in the price of an input will increase the _____ of producing the final good and shift the supply curve of the commodity _____.
(42) If the supply of a commodity is inelastic, what will be the effect of a fall in demand?
(37) The figure given below depicts the income consumption curves of an individual for four goods P, Q, R, and S. 
-Refer to Figure .Which of the following goods has a negative income elasticity?
-Refer to Figure .Which of the following goods has a negative income elasticity? (35) A change in the price of a commodity affects both the demand and the quantity demanded.
(34) If the demand for a commodity is perfectly elastic, a downward shift in supply will result in lower prices.
(31) The contact points where the terms of forward contracts are set are known as:
(38) Starting from a pure exchange equilibrium, an increase in the demand for a commodity will result in:
(39) Bankers supported the Federal Reserve Board's Regulation Q because:
(41) A sudden rise in input prices which drives up the marginal cost of producing automobiles will shift the supply curve of automobiles upward.
(32) If the cross-elasticity of demand for bacon with respect to price of beefsteak is positive, then:
(43) The supply curve of a producer, whose costs vary continuosly with output will be:
(31) 
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