Suppose That the Price Elasticity of Demand for a Product

question 36

Multiple Choice

Suppose that the price elasticity of demand for a product is -1 and that the price elasticity of supply is +1.Assume also that the income elasticity of demand is +2.Then an increase in income of 10% will raise equilibrium price by

• A)10%.
• B)5%.
• C)20%.
• D)an annual amount that cannot be determined.

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Definitions:

Year Ended

The conclusion of a 12-month accounting period, at which financial statements are prepared to summarize the year's transactions.

Direct Materials Used

The cost of raw materials that are directly involved in the production of goods.

Raw Materials

The basic materials and components required at the start of the production process to manufacture goods.

Total Manufacturing Costs

The sum of all costs directly associated with the production of goods, including raw materials, direct labor, and manufacturing overhead.