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Unformatted text preview: ies increase the supply of oil and as a result their oil
revenues decrease. Which of the following statements is correct?
e) Demand for oil is price inelastic
Demand for oil is price elastic
Demand for oil is perfectly elastic
Demand for oil is perfectly inelastic
Demand for oil is unit elastic Solution: a) Demand for oil is price inelastic
Increase in supply shifts the supply curve to the right the price falls and the quantity
Total revenue = Q*P lower price reduces revenues, but higher quantity sold increases
revenues. If total revenues fall, it must be that %∆P > %∆Q price elasticity of demand
is less than one. Q11. Jim’s monthly income has just risen from $3,900 to $4,100. As a result he decides
to increase the number of movies he attends each month by 4 percent. Jim’s demand for
movies is a)
e) Income inelastic
Unpredictable Solution: a) Income inelastic Income elasticity of demand: ε I = %∆Q
%∆I 200 /[(3900 + 4100) / 2] Q12. Suppose the quantity demanded o...
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This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.
- Fall '07