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20 May 2018

7. Suppose that the U.S. government imposes the tax on ice cream sellers of $0.50 per gallon of ice cream. If the market price of ice cream rises by $0.10 per gallon, we know that: (a) the demand for ice cream is more inelastic than the supply of ice cream. (b) the supply of ice cream is more inelastic than the demand for ice cream. (c) the demand for ice cream is unit elastic. (d) ice cream companies are being nice.

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Nestor RutherfordLv2

21 May 2018

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Related questions

1.Brian receives more utility from two apples than from one apple. However, the amount of extra utility provided decreases with each additional apple. This example illustrates which of the following:

a. Scarcity

b. Utility maximization

c. Inelastic demand

d. Diminishing marginal utility

2.A listeria outbreak recently hit the US cantaloupe industry, resulting in decreased consumer demand for cantaloupe. How is this demand decrease reflected on the demand curve?

a.Inward shift of the demand curve

b.Outward shift of the demand curve

c.Upward movement along the demand curve

d.No change in the demand curve

3.The price of beef increases, resulting in decreased consumer demand for beef. How is this demand decrease reflected on the demand curve?

a.Inward shift of the demand curve

b.Outward shift of the demand curve

c.Upward movement along the demand curve

d.No change in the demand curve

4.A 1% increase in the price of cereal leads to a 2% decrease in consumer demand for cereal. Which of the following best describes the own-price elasticity of cereal?

a.Inelastic

b.Unitary elastic

c.Elastic

5.The slope of the demand curve for salt is ________the demand curve for steak.

a.Steeper than

b.The same as

c.Flatter than

6.The price of butter decreases from $3/lb to $2/lb. The quantity demanded of butter increases from 2lbs to 3.5lbs. What is the own-price elasticity of butter?

a.-1.27

b.-2.25

c.-2.50

d.-1.49

7.The price of crackers increase from $2/box to $2.5/box. Demand for cheese decreases from 1.5/lbs to 1/lb. Which of the following best describes the relationship between crackers and cheese?

a.Complements

b.Unitary

c.Substitutes

d.Inelastic

8.A householdâs income decreases from $50,000/year to $40,000/year. The householdâs demand for steak decreases from 20/lbs to 15/lbs per year. What is the income elasticity of demand for steak?

a.1.25

b.0.76

c.0.25

d.1.00

9.Morton decides to increase the price of its salt from $1/lb to $1.5/lb. How will this price increase affect sales?

a.Sales of salt will increase

b.Sales of salt will remain the same

c.Sales of salt will decrease

10.Haagen Dazs decides to increase the price of its ice cream from $5/pint to $7/pint. How will this price increase affect sales?

a.Sales of Haagen Dazs ice cream will increase

b.Sales of Haagen Dazs ice cream will remain the same

c.Sales of Haagen Dazs ice cream will decrease

1. Grand TV Manufacturer wants to increase the quantity of TVs it sells by 8%. If the price elasticity of demand is 4, the manufacturer must:

a. decrease price by 1.5%.

b. increase price by 1.5%.

c. increase price by 2.0%.

d. decrease price by 2.0%.

2. Suppose that an Italian ice cream firm is facing a linear demand curve and that the current price for the Italian ice cream is set at a point where the price elasticity is 0.7. If the firm decreases the product price,

Select one:

a. the demand becomes less inelastic, and total revenue increases.

b. the demand becomes more inelastic, and total revenue decreases.

c. the demand becomes more inelastic, and total revenue increases.

d. the demand becomes less inelastic, and total revenue decreases.

3. Suppose that in a month, the price of movie rentals decreases from $3.25 to $3. At the same time, the quantity of movie rentals demanded increases from 100 to 120. The price elasticity of demand for movie rentals (calculated using the midpoint formula) is:

a. elastic.

b. zero.

c. inelastic.

d. unitary elastic.

4. The price elasticity of demand for color printers is 1.6, and you would like to see the quantity demanded of color printers increase by 32%. Then the percentage change in price should be:

Select one:

a. 15%.

b. 25%.

c. 10%.

d. 20%.

5. The price of apple increases from $1 to $1.10. At the same time, the quantity of apples demanded decreases from 100 to 90. The price elasticity of demand for apples (calculated using the initial value formula) is:

a. 0.9.

b. 0.02.

c. 1.1.

d. 1.

cyanspider596

Part II – Give an adequate explanation on the following questions (20%) – 4 marks each

Discuss the factors that determine the income elasticity of demand.
Explain the conditions for oligopoly market structure to exist.
What is increasing returns to scale? and describe at least three causes of increasing returns to scale?
What is the relation between productivity and cost? Describe the association using equations for MC & MP, and AP & AC
Do monopoly firms get a normal profit or supernormal profit in the short run? Explain how?

Part III – Problem Solving (20%)

If a consumer increases her quantity of ice cream consumed by 100% when her income rises by 25%. Calculate her income elasticity of demand for the ice cream and interpret the result. (2marks)
If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium price and quantity? (2 marks)

Assume you are managing a food processing plant in Ethiopia. The demand function for one of your product is given as Qd=50-2p. (8 marks)
A) Find the point price elasticity if price is 15 ETB? Is it elastic or inelastic?
b) How do you interpret the elasticity result?
c) In order to get more revenue what will be your recommendation. Is it to increase price or decrease price? Why?

d) Describe at least four determinants of the price elasticity demand for the food product?