If the price elasticity of demand for chocolate is -2.0 what should we expect would happen to consumption of chocolate if the price falls by 10%? What about a 50% decrease?
What will be an ideal response?
Consumption of chocolate should increase by 20%. If the price falls by 50% the increase in consumption may be less than 100%. The reason is that price cut is moving consumers into the inelastic portion of the demand curve. In other words, the absolute value of the price elasticity of demand for chocolate may no longer be 2.0 but rather much lower and even be less than 1.0.
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The IS—LM model predicts that a temporary beneficial supply shock
A) increases output, national saving, and investment, but not the real interest rate. B) increases output, national saving, and the real interest rate, but not investment. C) increases the real interest rate, investment, and output, but not national saving. D) increases output, national saving, investment, and the real interest rate.
When the price of a good falls, there will be
A) an outward shift in the good's demand curve. B) both an outward shift in the good's demand curve and a movement along the good's demand curve. C) a movement along the good's demand curve. D) no change in quantity demanded.
Which of the following is an exogenous variable in the Three-Sector-Model?
a. Real Domestic GDP b. GDP price index c. Real risk-free interest rate d. Quantity of currency per time period e. Open market operations
If you put $700 in a savings account at an interest rate of 3 percent, how much money will you have in one year?
A. $721 B. $703.00 C. $370 D. $679.61