Question

1. If the price elasticity of demand for tomatoes is -1.25 and quantity changes by 3% due to this large crop, how much will quantity demanded change? Show your work for the possibility of partial credit.

2. An industry in which one firm can supply the entire market at a lower price than two or more firms can is called a

a. legal monopoly

b. single-price monopoly

c. natural monopoly

d. price-discriminating monopoly

3. Suppose excellent weather leads to a larger than normal tomato crop. If there is a relatively small change in price compared to the change in quantity resulting from this large crop, what does this imply about the price elasticity of demand for tomatoes?

a. it is relatively elastic

b. it is relatively inelastic

c. it is perfectly elastic

d. it is perfectly inelastic

4. If in addition to a large crop, genetic innovation produces especially good tasting tomatoes, what will be the net impact on market equilibrium price and quantity of tomatoes?

Answer 1

1. % change in quantity demand = -1.25*3% = -3.75

quantity demand changes = 3.75-3= .75 units

2. (C)

An industry in which one firm can supply the entire market at a lower price than two or more firms can is called a natural monopoly

3. (A)

when change in price is less than change in quantity demand it will be considered as relative price elastic.

4. if genetic innovation produces especially good tasting tomatoes, due to reason quantity supply will increase and assuming the demand as same as earlier then market equilibrium will hit ot new place where price will be low as the supply has increased and quantity will also be increased.