Question

The following is occurring in the market for bicycles: There is an increase in the number of firms. There is a positive change in consumer tastes. Consumers expect prices to increase. Costs of inputs have decreased. There has been an increase in the number of consumers. Based on this information, what can be predicted with certainty?

a. The equilibrium price will decrease.
b. The equilibrium quantity will increase.
c. The equilibrium price will increase.
d. The equilibrium quantity will decrease.

Assume there is a simultaneous decrease in supply and decrease in demand. Which of the following statements is correct?
a. The equilibrium quantity will definitely decrease.
b. The equilibrium quantity will definitely increase.
c. The equilibrium price will definitely increase.
d. The equilibrium price will definitely decrease.
e. The equilibrium quantity will definitely stay the same.

In which of the following cases will a firm’s total revenue increase? There is more than one correct answer to this question. You must mark all of the correct answers to receive full credit.
a. Demand is inelastic and the firm decreases the price.
b. Demand is elastic and the firm increases the price.
c. Demand is elastic and the firm decreases the price.
d. Demand is inelastic and the firm increases the price.

When an ice cream shop charged $4.00 for an ice cream it sold 200 ice creams in a day. When the same store charged $3.00 for an ice cream it sold 340 ice creams in a day. What is the price elasticity of demand (in absolute value)?
a. 0.75
b. 0.55
c. 2.42
d. 1.81
e. 1.36

Assume there is a decrease in income and an increase in the number of firms. How would you summarize the results for equilibrium price and equilibrium quantity?
a. The equilibrium price will decrease but any change in the equilibrium quantity is uncertain.
b. The equilibrium price will increase but any change in the equilibrium quantity is uncertain.
c. The equilibrium quantity will decrease but any change in the equilibrium price is uncertain.
d. The equilibrium quantity will increase but any change in the equilibrium price is uncertain.

Answer 1

Q1)option b)

As demand rises , demand Curve shifts to right

Supply also rises, it shifts downwards to right, .so ambiguous effect on P, but Quantity will surely rise

2) option a)

Botb Decrease, shifts to left, so Q will definitely fall, effect on P is ambiguous

3) option  d, c

TR will increase if,

1) Demand in-elastic, price rise

2) demand Elastic, price fall

4) option d)

Price Elasticity of demand = %∆ in Q/%∆ in P

From midpoint method

= (140)*(7)/(540*-1)

=- 1.81

5) option a)

Demand Decrease, supply Increase

Demand Curve shifts inwards to left, Supply curve shifts rightwards to down

Price will definitely fall