Week 3 Quiz Essay

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1. Question : (TCO A) There is a decrease in the cost of labor for producing bicycles. (4 pts.) What happens to bicycle supply? (6 pts.) What happens to bicycle demand? Student Answer: When there is an increase in the price of labor for making bicycles the supply would decrease because it would cost more to make the bikes and the supply curve would shift to the left. There would be no change in the demand for the bicycles. Instructor Explanation: Since a change in costs to produce the product is a supply factor, a decrease in costs would be expected to increase bicycle supply. Remember that supply is a schedule of how many units suppliers are willing to offer at different prices. When costs fall, the supply curve increases…show more content…
100 35.......... 180 20............300 10............500 a. (2 pts.) What is demand elasticity in the $10 - $20 price range? Is demand elastic, inelastic, or of unitary elasticity? Calculate the value and show all of your work. Be sure to use the midpoint equation used to determine elasticity. b. (4 pts.) Assume demand elasticity is 1.3 in the $35 - $50 price range. In this range of demand, by what percentage would quantity demanded change if price increases by 9 percent? Show your detailed calculations. c. (4 pts.) What is the effect of a price decline from $35 to $20 on total revenue for the event? Does total revenue (TR) increase, decrease, or remain the same? By how much? Show your detailed calculations. Student Answer: A. : (Q1 – Q0)/((Q1 + Q0)/2)÷ (P1 – P0)/((P1 + P0)/2) = (500-300)/((500+300)/2/(10-20)/((10+20)/2 = )200/400)/(10/15) = .5/.67 = .746. This demand is inelastic because the demand elasticity is less than 1. B. When price elasticity changes by 9% you will have a decline in price by 11.7 %. Take change in price (9%)*demand elasticity (1.3) = .117 = 11.7%. c. 35*180 = $6300.00 TR 20*300 = $6000.00 TR = $300.00 decline in TR if you drop the price from $35 to $20. Instructor Explanation: a. Using the recommended mid-point formula for calculating

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