Question

When the price of commodity B rises by 10%, the total revenue received by firms that sell commodity B rises by 5%. The demand for commodity B is therefore a) perfectly elastic b) unitary elastic c) inelastic d) elastic

Answer 1

Answer:

Short Answer Question.

5. Initially Hans Johnson was the only consumer in the market for "Casa de Econ" beer, produced by a small local brewery. When the price of "Casa de Econ" six-pack varies between $10 and $20, the price elasticity of his individual demand is equal to negative 1. Now imagine that Hans has been cloned 4 times, and now we have 5 identical consumers in the market for "Casa de Econ". What will happen to the price elasticity of market demand in the price range given above? Will the demand become more price elastic, less price elastic, or will elasticity stay the same? Explain your answer.

Since elasticity deals with relative changes, it doesn't matter how many consumers we have in the market as long as all of them are same. (If the quantity demanded for each of them changes by 50%, that would mean the quantity demanded in the entire market will change by 50%, too.) So the price elasticity of demand will stay the same.

Answer 2

Answer:

When the price of commodity B rises by 10%, the total revenue received by firms that sell commodity B rises by 5%. The demand for commodity B is therefore inelastic

Explanation:

Demand for commodity is inelastic

• This is due to the fact that a 10 percent increase in the price of commodity B increases demand, which in turn creates a 5 percent gain in income.
• This indicates that the demand for the commodity is inelastic because the price adjustment only had a minor impact on it.

Inelastic demand:

When the amount sought changes little as a result of a price adjustment, the demand is said to be inelastic.

Explanation for incorrect answer:

Elastic demand:

A demand that is elastic undergoes a significant change in quantity demanded as a result of a price adjustment.

unitary elastic:

According to unitary elasticity, the quantity required or supplied changes by the same percentage for every change in price.

Perfectly elastic

A change in price causes the quantity to decrease to zero, which is referred to as being perfectly elastic.

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