Side-by-Side Graphs
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AP Microeconomics › Side-by-Side Graphs
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.
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.
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.
Which of the following statements describes price discrimination?
The price of the same product is different for different consumers.
The price of two different products are different for different consumers.
The price of two different products are the same for different consumers.
The price of the same product is the same for different consumers.
The price of a particular product is less than the marginal cost of producing that product.
Explanation
Price discrimination occurs when a firm sets two different price levels for different consumers buying the same product. For example, a firm may sell a particular pharmaceutical drug for one price in the US and another price in Europe.
Answer choice "The price of a particular product is less than the marginal cost of producing that product" refers to the rare situation in which a firm sells a good for less than it costs to make it. This may happen in the case of promotions, but is not an example of price discrimination.
The other answer choices represent distortions of the definition of price discrimination and are therefore incorrect.
Which of the following statements describes price discrimination?
The price of the same product is different for different consumers.
The price of two different products are different for different consumers.
The price of two different products are the same for different consumers.
The price of the same product is the same for different consumers.
The price of a particular product is less than the marginal cost of producing that product.
Explanation
Price discrimination occurs when a firm sets two different price levels for different consumers buying the same product. For example, a firm may sell a particular pharmaceutical drug for one price in the US and another price in Europe.
Answer choice "The price of a particular product is less than the marginal cost of producing that product" refers to the rare situation in which a firm sells a good for less than it costs to make it. This may happen in the case of promotions, but is not an example of price discrimination.
The other answer choices represent distortions of the definition of price discrimination and are therefore incorrect.
The demand for oranges at point D is:
Inelastic
Perfectly elastic
Elastic
Unit elastic
Perfectly inelastic
Explanation
For a demand curve, the upper left portion is elastic, the middle portion is unit elastic and the lower right portion is inelastic. You can confirm by calculating E = percent change in quantity/ percent change in price between the points on the lower right portion of the demand curve. If E < 1, then demand is inelastic.