Calculate the elasticity for each variable and briefly comment on what information this gives you in each case
What will be an ideal response?
Based on the above figures, Q = 2,000
(Own) Price elasticity = -10(1,000/2,000 ) = -5. Demand is elastic at this price.
Advertising elasticity = 5(40/2,000 ) = 0.1. A 1% increase in advertising expenditure will lead to a 0.1% increase in sales.
Cross-price elasticity = 4(800/2,000 ) = 1.6. Because the cross-price elasticity is positive, the goods are considered substitutes. A 1% increase in the competitor's price is expected to produce a 1.6% increase in the firm's sales.
Income elasticity = 0.05(4,000/2,000 ) = 0.1. The good is most likely a normal good because the income elasticity is greater than zero and also a necessity because the income elasticity is less than one. This good is not likely to be particularly responsive to income changes.
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A. producer surplus will fall if profits fall. B. producer surplus will fall if profits rise. C. producer surplus will increases if profits fall. D. producer surplus always increases.
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A public good is:
A. rival in consumption and excludable. B. not rival in consumption and not excludable. C. not rival in consumption, but excludable. D. rival in consumption, but not excludable.