2 Demand is ___ if a small change in price creates a large change in demand.
3 The elasticity of supply is defined as the ___ changes in quantity supplied divided by the ___ change in price.
a. marginal; percentage
b. total; percentage
c. percentage; percentage
5 When income increases and the demand for a good increases, the good is considered a..
a. inferior good
b. normal good
c. complementary good
6 When a 5% increase in income causes a 3% drop in quantity demanded of a good
a. the income elasticity is .6 and the good is an inferior good
b. the cross-price elasticity is .6 and the good is an inferior good
c. the income elasticity is 1.67 and the good is a normal good
7 You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advise that the estimated price elasticity of demand for the first few months after a price change is about -0.3. Select the statement that best describes the results of raising the fare in the short run.
a. Total revenue will rise incrementally as the demand fluctuates and price moves back and forth between being elastic and inelastic.
b. Total revenue falls, since demand changes and becomes price inelastic.
c. Total revenue rises immediately after the fare increase, since demand over the immediate period is price inelastic.
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