Question

1. If the price decreases by 4 percent. As a result, the quantity demanded increases by 12 percent. The price elasticity of demand is………...

2. What is the relationship between elasticity and revenue?

3. A 7 percent reduction in the price of a product has zero effect on the dollar amount of consumer expenditure on the product. The price elasticity of demand is………

4. What does the price elasticity of demand coefficient measures?

5. What is characteristic of the demand for a commodity that is elastic or inelastic or unit elastic?

6. What is unit elastic? When the price of a god goes up and demand is unit elastic, what would happen to the total revenue?

7. What is the basic difference between the short run and the long run?

8. What is the relationship between the total product and marginal product?

9. What is the relationship between the total cost concept and average cost concepts? For instance, if you know TC and Quantity, how do you calculate Average Total Cost?

10. What is the vertical distance between Total Cost and Total Variable Cost?

11. Define the Marginal Cost, Average Total cost, Average Variable cost, Average fixed cost?

12. What is an implicit cost?

13. What is an explicit cost?

14. What is the difference between implicit cost and explicit cost?

15. What is the difference between accounting profit and economic profit?

16. In economics total cost include________ (implicit or explicit or both?????)

Answer 1

1. Price elasticity of demand = percentage change in quantitity demanded / percentage change in price = 12/ (-4) = -3

The absolute value of elasticity is 3.

2. In case of inelastic demand, percentage change in quantitity demanded is less than percentage change in price. Therefore, when demand is inelastic, increase in price increases total revenue. That is, in case of inelastic demand, change in price and change in total revenue moves in the same direction.

But when demand elastic, a small increase in price will decrease the Quantitity demanded by a very large amount and therefore total revenue will decrease. So in case of elastic demand, change in price and change in total revenue moves in the opposite direction.