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1) Consider the following statements when answering this question I. When a competitive...

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1) Consider the following statements when answering this question

I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers.

II. Even in competitive markets firms have no incentives to control costs, as they can always on cost increases to consumers.

A) I and II are true.

B) I is true, and II is false.

C) I is false, and II is true.

D) I and II are false.

2) Consider the following statements when answering this question.

I. Overall, the sick will always gain from a price ceiling on prescription drugs.

II. The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve.

A) I and II are true.

B) I is true, and II is false.

C) I is false, and II is true.

D) I and are false.

3) Under a binding price ceiling, what does the change in consumer surplus represent?

A) The gain in surplus for those buyers who can still purchase the product at the lower price.

B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.

C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.

D) Both A and B are correct.

E) Both A and Care correct.

4) Suppose a competitive market is in equilibrium at price P' and quantity Q' . If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus?

A) Both PS and CS increase

B) CS increases and PS decreases

C) CS increases and PS remains the same

D) Both CS and PS decrease

Price Elasticity of Demand:

Price elasticity of demand (PED) is a measure of how responsive demand is to a change in the price of the good. It is calculated as the percentage change in the quantity demanded divided by the percentage change in the price:

{eq}PED = \frac{\%\Delta{Q_d}}{\%\Delta{P}}\\ {/eq}

Answer and Explanation: 1

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1) Consider the following statements when answering this question: (B) I is true, and II is false.

I. When a competitive industry's supply curve is...

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Price Elasticity of Demand: Definition, Formula & Example

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Chapter 3 / Lesson 54
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Learn what price elasticity is. Discover how to find price elasticity of demand, study examples of price elasticity, and examine a price elasticity graph.


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