Explain what happens to the magnitude of price elasticity of demand as price increases along a straight-line demand curve.
What will be an ideal response?
Price elasticity is the ratio of percentage change in quantity to the percentage change in price. One form of the formula is [(change in Q)/(change in P)] [P/Q]. Since slope of a straight line is constant, only P/Q changes. As P increases, Q decreases, so P/Q increases. Thus, elasticity increases (in absolute value).
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What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?
a. An amount equal to (price less average variable cost). b. An amount equal to total variable. c. Zero. d. An amount equal to total fixed cost.
Sellers may choose not to sell in certain markets because: a. it is possible to practice price discrimination against customers
b. buyers are unable to perceive the high quality of their goods and are, therefore, less willing to pay for them. c. they are able to impose negative externalities on third parties. d. an above-average profit potential is projected.
What effect, if any, does diminishing marginal product have on the shape of the marginal cost curve?
Suppose workers and employers agree to a three-year wage contract under the expectation of 3 percent inflation, but inflation turns out to be 1 percent. In this case, ________ lost purchasing power, and ________ gained purchasing power.
A. no one; employers B. workers; employers C. employers; workers D. employers; no one