Micro2Solutions

# Comfreestuff q10 suppose oil producing countries

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ies increase the supply of oil and as a result their oil revenues decrease. Which of the following statements is correct? a) b) c) d) 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 supplied increases. Total revenue = Q*P lower price reduces revenues, but higher quantity sold increases revenues. If total revenues fall, it must be that %∆P &gt; %∆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) b) c) d) e) Income inelastic Income elastic Price elastic. Price inelastic. Unpredictable Solution: a) Income inelastic Income elasticity of demand: ε I = %∆Q 0.04 = = 0.8 %∆I 200 /[(3900 + 4100) / 2] Q12. Suppose the quantity demanded o...
View Full Document

## This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

Ask a homework question - tutors are online