Question

Suppose the price of craft beer increased from $9.5 to $10.50 per six pack. As a result the weekly quantity of craft beer sold in Blacksburg decreased from 10,250 to 9,750 six packs. From this information, we can conclude that craft beer is an __________ good and that total revenue from the sale of craft beer in Blacksburg _________ due to higher prices.

elastic, increased

inelastic, increased

elastic, decreased

inelastic, decreased

normal good, increased

normal good, decreased

Question 17

Inferior goods have positive income elasticities of demand?

True

False

Question 18

Suppose the price of milk increased from $3.00/gallon to $3.40/gallon. If the revenue from milk sales increased, we can conclude that milk has an elasticity

Equal to 0

Between 0 and -1

-1

Between -1 and negative infinity

Answer 1

The formula for the elasticity of demand is (Percentage change in quantity / Percentage change in price)

therefore, (10250 - 9750)/(9.50-10.50) x 9.5/10250 = -0.46

Thus it's relatively inelastic.

The revenue before price change = 10250 x 9.50 = 97375

The revenue after price change = 9750 x 10.50 = 102375

Thus the revenue has increased due to higher price.

Inelastic, increased.

17.

False. The demand for inferior goods decreased as income increases.

18.

Since revenue increase with the increase in price in the case of inelastic demand. So, elasticity is between 0 and -1.