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Suppose that the price of Good Y increases by 5%. If the quantity supplied of Good Y remains constant, then the price elasticity of supply of Good Y is ________.
less than 0.
greater than 1.
impossible to determine from the information given.
Explanation
Remember that the price elasticity of supply is calculated by taking the percent change of the quantity supplied (in this case 0%) divided by the percent change in the price (in this case 5%). So the price elasticity of supply of Good Y is 0.
Suppose that the price of Good Y increases by 5%. If the quantity supplied of Good Y remains constant, then the price elasticity of supply of Good Y is ________.
less than 0.
greater than 1.
impossible to determine from the information given.
Explanation
Remember that the price elasticity of supply is calculated by taking the percent change of the quantity supplied (in this case 0%) divided by the percent change in the price (in this case 5%). So the price elasticity of supply of Good Y is 0.
Use the following graph for questions 9 - 11
Increasing the price of oranges at point D will result in:
- An increase in total revenue
- A decrease in quantity demanded
- Movement toward a portion of the demand curve that is more elastic
1, 2, and 3
1 only
2 only
3 only
1 and 2
Explanation
If we are in the inelastic portion of the demand curve, an increase in price will increase TR, since the price effect is greater than the quantity effect. Quantity will still decrease.
Which of the following is true of the relationship between the demand curve and the marginal revenue curve in a monopolistic structure?
The demand curve is always greater than or equal to the marginal revenue curve.
The demand curve is always less than or equal to the marginal revenue curve.
The demand curve is always greater than the marginal revenue curve.
The demand curve is always equal to the marginal revenue curve.
The marginal revenue curve decreases while the demand curve increases.
Explanation
A monopolist faces a downward sloping demand curve, indicating market power, in contrast to the horizontal demand curve faced by perfectly competitive firms. A monopolist faces a downward sloping marginal revenue curve as well.
The monopolist's marginal revenue curve has the same y-intercept (intercept on the price-axis) as the demand curve, but has a steeper slope. Therefore, the demand curve is always equal to (at the intercept) or greater than (everywhere after the intercept) the marginal revenue curve. Answer choice "The demand curve is always greater than or equal to the marginal revenue curve" is correct.
The other answer choices are distortions of this relationship.
Suppose that the price of Good Y increases by 5%. If the quantity supplied of Good Y remains constant, then the price elasticity of supply of Good Y is ________.
less than 0.
greater than 1.
impossible to determine from the information given.
Explanation
Remember that the price elasticity of supply is calculated by taking the percent change of the quantity supplied (in this case 0%) divided by the percent change in the price (in this case 5%). So the price elasticity of supply of Good Y is 0.
Use the following graph for questions 9 - 11
Increasing the price of oranges at point D will result in:
- An increase in total revenue
- A decrease in quantity demanded
- Movement toward a portion of the demand curve that is more elastic
1, 2, and 3
1 only
2 only
3 only
1 and 2
Explanation
If we are in the inelastic portion of the demand curve, an increase in price will increase TR, since the price effect is greater than the quantity effect. Quantity will still decrease.
Which of the following is true of the relationship between the demand curve and the marginal revenue curve in a monopolistic structure?
The demand curve is always greater than or equal to the marginal revenue curve.
The demand curve is always less than or equal to the marginal revenue curve.
The demand curve is always greater than the marginal revenue curve.
The demand curve is always equal to the marginal revenue curve.
The marginal revenue curve decreases while the demand curve increases.
Explanation
A monopolist faces a downward sloping demand curve, indicating market power, in contrast to the horizontal demand curve faced by perfectly competitive firms. A monopolist faces a downward sloping marginal revenue curve as well.
The monopolist's marginal revenue curve has the same y-intercept (intercept on the price-axis) as the demand curve, but has a steeper slope. Therefore, the demand curve is always equal to (at the intercept) or greater than (everywhere after the intercept) the marginal revenue curve. Answer choice "The demand curve is always greater than or equal to the marginal revenue curve" is correct.
The other answer choices are distortions of this relationship.
Use the following graph for questions 9 - 11
Increasing the price of oranges at point D will result in:
- An increase in total revenue
- A decrease in quantity demanded
- Movement toward a portion of the demand curve that is more elastic
1, 2, and 3
1 only
2 only
3 only
1 and 2
Explanation
If we are in the inelastic portion of the demand curve, an increase in price will increase TR, since the price effect is greater than the quantity effect. Quantity will still decrease.
Which of the following is true of the relationship between the demand curve and the marginal revenue curve in a monopolistic structure?
The demand curve is always greater than or equal to the marginal revenue curve.
The demand curve is always less than or equal to the marginal revenue curve.
The demand curve is always greater than the marginal revenue curve.
The demand curve is always equal to the marginal revenue curve.
The marginal revenue curve decreases while the demand curve increases.
Explanation
A monopolist faces a downward sloping demand curve, indicating market power, in contrast to the horizontal demand curve faced by perfectly competitive firms. A monopolist faces a downward sloping marginal revenue curve as well.
The monopolist's marginal revenue curve has the same y-intercept (intercept on the price-axis) as the demand curve, but has a steeper slope. Therefore, the demand curve is always equal to (at the intercept) or greater than (everywhere after the intercept) the marginal revenue curve. Answer choice "The demand curve is always greater than or equal to the marginal revenue curve" is correct.
The other answer choices are distortions of this relationship.
Suppose that as result of a 10% increase in income, the quantity demanded of Good X increases by 20%. Which of the following is true?
The income elasticity of demand for Good X is greater than 1.
The income elasticity of demand for Good X is equal to 1.
The income elasticity of demand for Good X is between 0 and 1.
The income elasticity of demand for Good X is less than 0.
Good X is an inferior good.
Explanation
Remember that incomce elasticity of demand refers to the percent change in the quantity demanded of a good divided by the percent change in income. Since the percent change in the quantity demanded of Good X was 20% and the percent change in income was 10%, the income elasticity of demand for Good X is 20%/10% = 2. Thus, the income elasticity of demand for Good X is greater than 1.
Good X would be classified as an inferior good only if it had income elasticity of demand less than 0.