Can someone look at the answer for these?
After paying an economist to estimate the price elasticity of demand for socks, sock manufacturers, expecting to increase revenues, decide to reduce the price of socks. The estimate of demand elasticity could have been:
a) .75
b) .25
c) .5
d) 1.75
e) -.75
My answer was D
Which of the following goods would you expect to have the largest income elasticity of demand?
a) toothpaste
b) newspapers
c) rice
d) stereo equipment
My answer was D
If the price elasticity of demand for some good is estimated to be 4, then a 1% increase in price will lead to a:
a) 0.25% decrease in quantity demanded
b) 4% decrease in quantity demanded
c) 4% increase in quantity demanded
d) 0.5% increase in quantity demanded
e) 20% increase in quantity demanded
My answer was B
And I don't understand this last question please help.
Why would demand for oxygen be more inelastic than demand for caviar (assuming that you have to buy both goods in order to have them)?
To solve these questions, we need to understand some key concepts related to price elasticity of demand and income elasticity of demand.
Question 1:
The price elasticity of demand is a measure of how sensitive the quantity demanded of a good is to changes in its price. A higher absolute value of elasticity indicates a more significant change in demand as a response to a price change.
In this case, if the sock manufacturers expect to increase revenues by reducing the price of socks, it implies that the price elasticity of demand for socks must be greater than 1. When the price elasticity of demand is greater than 1, it means that a 1% decrease in price will lead to a more than 1% increase in quantity demanded. Therefore, option D (1.75) is the correct answer.
Question 2:
Income elasticity of demand measures how sensitive the quantity demanded of a good is to changes in consumers' income. A higher absolute value of elasticity indicates a more significant change in demand in response to changes in income.
To determine which good would have the highest income elasticity of demand, we need to consider which good is considered a luxury or an income-dependent good. Goods that are considered luxurious or discretionary tend to have a higher income elasticity of demand.
Among the given options, stereo equipment is typically considered a luxury good. As people's income increases, they are more likely to purchase stereo equipment, contributing to a substantial change in demand. Therefore, option D (stereo equipment) is the correct answer.
Question 3:
The price elasticity of demand measures the percentage change in quantity demanded in response to a 1% change in price. It helps us understand the sensitivity of demand to price fluctuations.
If the price elasticity of demand for a good is estimated to be 4, it means that a 1% increase in price will result in a 4% decrease in quantity demanded. Therefore, option B (4% decrease in quantity demanded) is the correct answer.
Question 4:
In this question, we are comparing the demand for oxygen and caviar, assuming that both goods must be bought to have them.
The more inelastic the demand, the less responsive the quantity demanded is to changes in price. When considering this, we need to think about how necessary and essential each good is.
Oxygen is a necessity for survival, and its demand is not influenced significantly by changes in price. This makes the demand for oxygen more inelastic. On the other hand, caviar is a luxury food item, and its demand is more likely to be affected by changes in price. Therefore, the demand for oxygen would be more inelastic compared to the demand for caviar.
To summarize, the demand for oxygen is more inelastic because it is essential for survival, while the demand for caviar is more elastic as it is a luxury good.