Chapter 6 DESCRIBING SUPPLY AND DEMAND, ELASTICITIES 7 3. Ifa firm can sell 1,20

Question

Chapter 6 DESCRIBING SUPPLY AND DEMAND, ELASTICITIES 7 3. Ifa firm can sell 1,200 units at a price of $14 per unit and 2,000 units at a price of $10 per unit, we can conclude: a Point B is more elastic than point A b.Point A is more elastic than point B. c. Points A and B have equal elasticity. d.One cannot say anything about the elastici- ?.the price elasticity of demand for that good is 1.5 ties without more information. h that the demand for this good is inelastic. c. that a price reduction would decrease the 8. The elasticity of the curve below is: firm's total revenue. d there must be very few substitutes for this good 4. As the manager of a hotel, you want to increase the number of occupancies by 12%. It has been determined that the price elasticity of demand for rooms in your hotel is 2. This information implies a perfectly elastic. b.perfectly inelastic. c, unit elastic. d partially inelastic. a. the demand for rooms in your hotel is bifyou lower your rates by 6% then you will c. if you were able to raise your rates your total d. there must be few substitutes for your hotel increase the number of occupancies by 12%. 9. When price changes from 4 to 5, output supplied changes from 50 to 60. The elasticity of supply is approximately revenue would rise. c. 1.23 d 25 S. A rise in price has just increased total revenue, other things constant. One would surmise 10. In the erapth below.point A on the supply that the demand for the firm's product is a. inelastic. b.elastic. c. unit elastic. d.none of the above. curve, S, is: a elastic h inelastic e. unit elastic. 123 d unknown because one cannot say from the 6. As a manager, you have determined that the demand for your good is quite elastic a increasing the price of your good will h decreasing the price of your good will c. increasing the price of your good will have d any change in your price will not impact Therefore: increase revenues increase revenues no impact on the quantity demanded. graph. 11. The supply curve in the graph below is 7. In reference to the graph below, which of the following is true? P a perfectly inelastic.a h perfectly elastic. c. unit clastic d showing that its elasticity changes at various points

Explanation / Answer

Q3. Answer is a. The price elasticity of demand for that good is 1.5 Explanation: Change in price: 14-10 =- 4 Average = 12 % Change in Price: -4 /12 *100 = -33.33% Change in demand: 2000-1200 = 800 Average demand: 1600 % change in demand: 800/1600 *100 = 50% Price elasticity = % change in demand/ % change in price 50% / - 33.33% = -1.5 Q4 Answer is b. if you lower the rates by 6% the increasse in number of occupanciies is by 12% Q5. Answer is a. inelastic Q6. Answer is b. decrease the price of your good will increase the revenue. Q7. Answer is a. Point B is more elastic than Ppoint C. Q8. Answer is a. Perfectly elastic. Q9. Answr is 0.8 Explanation: Change in supply: 10 % change in supply: 10/50 =20% Change in price: 1 % Change in price: 1 /4 = 25% Price elasticity of supply: 20% /25% =0.8 Q10. Answer is C. Unit elastic Q11. Answer is a. perfectly inelastic

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