Question 1 (b)

  • Lump-sum subsidy will not change MC or MR, so it has no impact on the output.

    Perfect Competition Lump-Sum- Subsidy Short Run Market 8 perfect
Competition Lump-Sum- Tax Short Run Market 8 s Quantity Quantity Profl
Firm Loss QI QI ATC ATCsub Quantity ATC Quantity Long-Run Market
Long-Run Firm Firm Market 02 QI Q2Qu Quantity Q2 02 ATCsub Quantity
ATCtax Quantity

    Per Unit vs. Lump Sum A PER UNIT tax or subsidy affects the VARIABLE
COSTS so MC, AVC, and ATC will shift. This WILL affect the quantity
produced A LUMP SUM tax or subsidy only affects FIXED COSTS so only
AFC and ATC will shift. MC stays the same. This WILL NOT affect the
quantity produced 31 Copyri ght ACDC Leadership 201 S

Question 2 (a)

  • Marginal utility

    • The extra satisfaction received from consuming an additional unit of a good or service.

Question 2 (c)

The price elasticity of demand determines whether the demand curve
  is steep or flat. Note that all percentage changes are calculated
  using the midpoint method 2.... 2.. 2.. 1 FIGURE The Price Elasticity
  of Demand (a) Perfectly Inelastic Demand: Elasticity Equals 0 (b)
  Inelastic Demand: Elasticity Is Less Than 1 Price $5 4 1. An Increase
  n price . 0 Price $5 4 Increase •n price 0 Demand IOO Price $5 4
  Increase In pnce . Quantity 90 IOO Demand Quantity leaves the quantity
  demanded unchanged. .. leads to an 11% decrease in quantity demanded.
  (c) Unit Elastic Demand: Elasticity Equals 1 Price $5 4 Increase In
  price 0 IOO Demand Quantity .. leads to a 22% decrease in quantity
  demanded. 2.. (d) Elastic Demand: Elasticity Is Greater Than 1 50 IOO
  Demand Quantity Price $4 0 (e) Perfectly Elastic Demand: Elasticity
  Equals Infinity . At any price above $4, quantity manded is zero.
  Demand . At exactly $4, consumers will buy any quantity. Quantity ..
  leads to a 67% decrease in quantity demanded. 3. At a price below $4,
  quantity demanded is infinite.

results matching ""

    No results matching ""