Elasticities

When quantity demanded falls more than proportionally in response to a price increase, it indicates that demand is elastic. This means that consumers are sensitive to price changes and a small increase in price leads to a relatively large decrease in the quantity demanded.

When demand is inelastic, it means that the quantity demanded is not very responsive to changes in price. Therefore, when the price decreases, the decrease in revenue from selling each unit at a lower price is not offset by the increase in quantity sold. As a result, the total revenue will fall.

The characteristic of highly elastic goods is that there are a large number of close substitutes for the good. This means that consumers have many alternative options to choose from if the price of the good increases, making their demand for the specific good more sensitive to changes in price.

Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. It is calculated by dividing the percentage change in quantity supplied by the percentage change in price. This ratio helps determine how much the quantity supplied will change in response to a change in price. A higher value of price elasticity of supply indicates a more elastic supply, meaning that producers are more responsive to price changes and will adjust their quantity supplied accordingly.

When income elasticity is close to zero for basic foodstuffs such as bread and milk, it means that the demand for these items does not significantly change with changes in income. This suggests that these items are necessities and consumers will continue to purchase them regardless of their income level. In other words, even if people's income increases or decreases, their demand for basic foodstuffs remains relatively constant.

The increase in student allowances from $150 to $165 per week led to an average increase in coffee consumption from 8 to 10 coffees per week. This indicates that the change in income had a significant impact on the demand for coffee, resulting in a relatively large increase in consumption. The coefficient of 2.5 suggests that for every 1% increase in income, there is a 2.5% increase in coffee consumption. Therefore, the income elasticity of coffee is elastic, meaning that a change in income has a proportionally larger effect on coffee consumption.

The coefficient for price elasticity will vary at each point along a demand curve because price elasticity measures the responsiveness of quantity demanded to changes in price. The degree of responsiveness can vary depending on various factors such as the slope of the demand curve, the availability of substitutes, and consumer preferences. Therefore, the coefficient for price elasticity will be different at different points along the demand curve.

If supply is perfectly inelastic, it means that the quantity supplied cannot be adjusted in response to changes in demand. Therefore, even if demand decreases, the quantity supplied will remain the same. However, since demand has decreased, there will be a surplus of goods in the market, leading to a decrease in price. Hence, the correct answer is that the price will fall and the quantity will remain the same.

The given information states that the price of shares fell from $4.20 to $3.99, causing sellers to offer 4% more shares for sale compared to the previous day's trading. This indicates that the quantity supplied increased by a small percentage in response to a decrease in price. A coefficient of 0.8 suggests that the supply is relatively inelastic, meaning that a change in price has a relatively smaller impact on the quantity supplied. Therefore, the correct answer is that supply is relatively inelastic with a coefficient of 0.8.

The correct answer is price inelastic. When the government increases third party insurance charges on motor vehicle licenses, it suggests that they believe the demand for these licenses is likely to be price inelastic. This means that even with an increase in price, the demand for motor vehicle licenses is not expected to significantly decrease. This implies that people are willing to pay higher prices for these licenses, regardless of the increase in cost.

The answer is valid because the degree of supply elasticity is indeed dependent upon the extent to which the commodity is considered a luxury or a necessity. Luxury goods tend to have more elastic supply as consumers are more likely to decrease their demand if the price increases. On the other hand, necessities have less elastic supply as consumers are less likely to decrease their demand even if the price increases. Therefore, the elasticity of supply is influenced by the nature of the commodity being considered.