9. Suppose that a firm knows that the demand for its product is inelastic. It fo
ID: 1129747 • Letter: 9
Question
9. Suppose that a firm knows that the demand for its product is inelastic. It follows that if a) the firm will sell more of the product d) the firm's revenue will remain constant 10. Suppose a firm faces a demand curve that is perfectly elastic. It follows that: the firm raises its price then: the firm's revenue will rise the firm's revenue will fall c) d) the firm should raise its price in order to maximize revenue the firm can sell as much as it wishes at the market price the amount sold will not change if the firm raises or lowers its price 11. Suppose that the equilibrium wage for unskilled labor is equal to $12/hour. The minimum wage was previously equal to $7.25/hour and is now set at $11/hour. This increase in the minimum wage will: a) cause employment to rise cause employment to fall c) have no effect on employment d) raise the demand for labor Suppose that the equilibrium rent for apartments is equal to $1,000/month but the government imposes a maximum rent of $800/month. This restriction will 12. cause the amount of housing rented out to rise cause the amount of housing rented out to fall have no impact on the amount of housing rented out d) induce landlords to add amenities to their apartments 13. An open market purchase of government debt by the Federal Reserve will: a) cause the money supply and interest rates to both rise d) cause the money supply and the money supply to both fall cause the money supply to rise and interest rates to fall cause the money supply to fall and interest rates to riseExplanation / Answer
9. b. The inelastic demand curve is steep. An increase in price leads to decrease in quantity by a smaller amount and hence, total revenue increases.
10. c. The perfectly elastic demand curve is horizontal at the market price and firm can sell any amount at that price.
11. a. At higher wages, more workers will be willing to work and hence employment will rise.
12. a. Landlord will have to take rent as set by Government and as the rent is less, more people will take the house.
13. b. Open market purchase means the government is buying bonds and supply cash in the economy. This will increase the money supply and decrease in interest rate so that borrowing becomes cheaper.
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