Salvatore’s Chapter 4
Discussion Question 8
(a) The quantity of household natural gas decreases by 14 percent in the short run because for every 1 percent increase in price, the quantity demanded decreases by 1.40 percent. The quantity of household natural gas decreases by 21 percent in the long run because for every 1 percent increase in price, the quantity demanded decreases by 2.10 percent.
(b) The quantity of electricity decreases by 1.3 percent in the short run because for every 1 percent increase, the quantity demanded decreases by 0.13 percent. The quantity of electricity decreases by 18.9 percent because for every 1 percent increase in price, the quantity demanded decreases by 1.89 percent.
Discussion Question 10
(a) The inelastic demand of agricultural commodities causes revenue to decrease when prices decrease. After a good harvest, supply increases, which would cause prices to decrease, thus lowering farmers’ incomes.
(b) The incomes of farmers fall in relation to other sectors of the economy because regardless of the pricing, the demand for agricultural commodities does not increase significantly because they are a necessity to society. Due to the fact that agricultural commodities are a necessity, consumers are going to spend their money on them even if the prices increase or decrease. Also, if consumers have an increase in income, they are not likely to buy more of a significant amount of agricultural commodities, but are likely to spend their money in other sectors such as luxury goods.
(a) Qc = 100,000 -100Pc + 2,000N + 50I + 30PF - 1,000PG + 3A + 40,000PI
Qc = 100,000 - 100Pc + 2,000(225) + 50(12,000) + 30(10,000) – 1,000(100) + 3(250,000) + 40,000(0)
QC = 1,900,000 – 100PC
(b) Qc = 1,900,000 – 100(10,000)
Qc = 900,000
(a) The transportation authority should increase the price of its rides due to its elasticity of demand because it is less than 1. An elasticity of demand that is less than 1 reflects an...