When the supply of and demand for a good both increase:
Answer(s): C
Choice "c" is correct. When the supply of and demand for a good both increase, equilibrium quantity increases. However, the impact on price is indeterminate. If demand and supply increase by the same amount, price will remain unchanged (as illustrated above). However, if demand increases by more than supply, price will increase. Conversely, if supply increases by more than demand, price will decrease.Choices "a" and "b" are incorrect, since the impact on price is indeterminate. Choice "d" is incorrect, since equilibrium quantity will increase.
A basic determinant of the elasticity of demand for a normal good is the:
Answer(s): B
Choice "b" is correct. The change in demand for a product, based upon a given change in that product's price, is dependent on whether or not other (presumably cheaper) goods can be substituted for the product.Choice "a" is incorrect. The elasticity of supply (not demand) would take into account the response time producers might have to market changes.Choice "c" is incorrect. The number of sellers is irrelevant when calculating the elasticity of demand. Choice "d" is incorrect. A complement good's demand is the same as the primary gooD. For example, an increase in the demand for a given food would cause the demand for its complement to also increase.The increased demand of the complement is irrelevant when calculating the elasticity of demand.
If the elasticity of demand for a normal good is estimated to be 1.5, then a 10% reduction in its price would cause:
Choice "c" is correct. The elasticity of demand is calculated as:% Change in demand% Change in priceIf the elasticity of demand is 1.5 (assumed to be the absolute value, as the elasticity of demand for a normal good is always negative), then a 10% price reduction would cause an increase in the quantity demanded by 15% (a ratio of 15 to 10 or 1.5).Choices "a", "b", and "d" are incorrect, per above.
If the demand for a normal good is inelastic, then the sales price of the product would increase following a(n):
Choice "c" is correct. If demand is perfectly inelastic (or not price sensitive), there will be no change in quantity demanded for a change in price. This means that consumers of the product will demand a constant quantity, regardless of the price. If the quantity supplied is reduced (presumably below an equilibrium point where supply equals demand), there will be excess demand for the product and sales price will go up. The increase in sales price will have no impact on demand (because demand is assumed to be perfectly price inelastic).Choices "a", "b", and "d" are incorrect, per the above Explanation.
The Waymand family typically ate hamburger as a regular staple in their diet. In the last few years, the family income has doubled, and they have now replaced hamburger with steak as a regular staple in their diet. This is an example where the demand for hamburger:
Choice "c" is correct. An inferior good is one for which the demand declines as income increases. A normal good would experience an increase in demand in response to an increase in income. Because the demand for hamburger went down as income increased, it is an inferior good. Choices "a", "b", and "d" are incorrect. The elasticity of demand for a good is calculated by measuring the change in quantity demanded over the change in price (not income). The question does not have sufficient information to calculate the elasticity of the demand for hamburger.
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