Question

4. Explain how the elasticity of demand affects the revenue of the seller.

5.Absolute advantage is the most important basis for trade. Do you agree?

Answer 1

4. When the demand is inelastic, an increase in price level would lead to less than proportional decrease in quantity demanded and the total revenue would increase. On the other hand, when the demand is elastic, a decrease in price level would lead to more than proportional increase in quantity demanded and the total revenue would increase.

5. Comparative advantage (based on opportunity costs of production) and not absolute advantage is the most important basis for trade.