C. food in general or breakfast cereal

d. gasoline over the course of a week or gasoline over the course of a year
  Time Horizon Goods tend to have more elastic demand over longer time horizons. When the price of gasoline rises, the quantity of gasoline demanded falls only slightly in the first few months. Over time, however, people buy more fuel- efficient cars, switch to public transportation, and move closer to where they work. Within several years, the quantity of gasoline demanded falls substantially.

E. personal computers or IBM personal computers

You are the owner of the Canteen on campus in SDU, and you know that the price elasticity of demand for your pizza is 0.5. What will happen to your total revenue from your pizza sales if you raise your prices? Prove your answer on the graph.

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There two formulas to calculate the price elasticity of demand/supply. Show both of them with numbers and prove which one is better and why?

Price elasticity of demand=PCQ \ PCP
Price elasticity of demand =(Q2-Q1)/[(Q2+Q1)/2(P2-P1)/[(P2+P1)/2]

 

5. What is the price elasticity of supply? What are the determinants of the price elasticity of supply, and how does each affect elasticity?
price elasticity of supply a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price.
Ability of sellers to change the amount of the good they produce.
Beach-front land is inelastic.
Books, cars, or manufactured goods are elastic.
Time period - Supply is more elastic in the long run.

Define income elasticity of demand. What does it measure? What does it mean if the income elasticity is positive; negative; small; large?

 

cross-price elasticity of demand-a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good.
Cross-price elasticity of demand= Percentage change in quantity demanded of good 1\Percentage change in the price of good.
Whether the cross-price elasticity is a positive or negative number depends on whether the two goods are substitutes or complements. substitutes are goods that are typically used in place of one another, such as hamburgers and hot dogs. An increase in hot dog prices induces people to grill hamburgers instead. Because the price of hot dogs and the quantity of hamburgers demanded move in the same direction, the cross-price elasticity is positive. Conversely, complements are goods that are typically used together, such as computers and software. In this case, the cross-price elasticity is negative, indicating that an increase in the price of computers reduces the quantity of software demanded.

 

Asset, a fisherman, goes out with a boat and a net early each morning. At 7:00 a.m., Asset takes his day's catch to the fish market and sells it at the market price. As a result of new information about the beneficial effects on health of a fish-rich diet, the demand for fish increases. How will Jack's supply of fish respond to the increased demand and higher price for his product in the short run and in the long run?

 

In the very short run, a period of one day, Asset cannot respond at all to theincreased price of fish, since his supply is perfectly inelastic. In the short run, Asset canrespond to the higher price by using more labor and nets to catch more fish. In the long run, Asset can also add more boats to the production process and catch even more fish. The longerthe time horizon, the more elastic will be Asset's supply of fish

 

8. In the 1970s, OPEC caused a dramatic increase in the price of oil. What prevented it from maintaining this high price through the 1980s? Graph your answer as well.
In 1973 OPEC raised the price of crude oil in world markets. Because crude oil is the major input used to make gasoline, the higher oil prices reduced the supply of gasoline. The price of oil rose 14 percent in 1979, followed by 34 percent in 1980, and another 34 percent in 1981. A REDUCTION IN SUPPLY IN THE WORLD MARKET FOR OIL. When the supply of oil falls, the response depends on the time horizon. In the short run, supply and demand are relatively inelastic, as in panel (a). Thus, when the supply curve shifts from S1 to S2, the price rises substantially. By contrast, in the long run, supply and demand are relatively elastic, as in panel (b). In this case, the same size shift in the supply curve (S1 to S2) causes a smaller increase in the price.

 

Why do farmers suffer declines in their total revenues when they become more productive as a group? You must demonstrate your answer on the graph. (Hint: Why good news for farming can be bad news for farmers).

 

if farmers are made worse off by the discovery of this new hybrid, why do they adopt it? The answer to this question goes to the heart of how competitive markets work. Because each farmer is a small part of the market for wheat, he or she takes the price of wheat as given. For any given price of wheat, it is better to use the new hybrid in order to produce and sell more wheat. Yet when all farmers do this, the supply of wheat rises, the price falls, and farmers are worse off.
When an advance in farm technology increases the supply of wheat from S1 to S2, the price of wheat falls. Because the demand for wheat is inelastic, the increase in the quantity sold from 100 to 110 is proportionately smaller than the decrease in the price from $3to $2. As a result, farmers’ total revenue falls from $300.( $3*100) to $220 ($2*110)

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