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(Solved) 25. If drinking tea is found to have negative health benefits, would this lead to a shift in the demand curve or a movement along the demand curve?


25. If drinking tea is found to have negative health benefits, would this lead to a shift in the demand curve or a movement along the demand curve? In which direction? (Show your answer on graph and make sure to label all the components of the graph)

26. Use the information in Exhibit 1. Calculate the value of price elasticity of demand between points A and B? Show your calculations.

Exhibit 1

Quantity

Price

A

30

$70

B

10

$90

27. Based on the information in Exhibit 1, the demand for the good is (elastic, unit elastic, or inelastic) and an increase in price from $70 to $90 per unit will (increase, decrease, or not change) total revenue. Choose your answers from the terms in parentheses.

28. For each of the following absolute values of price elasticity of demand, indicate whether demand is elastic, inelastic, or unit elastic. In addition, determine what would happen to total revenue if a firm reduces its price in each elasticity range identified.

a. ED = 0.7

b. ED = 1.0

c. ED = 4.5

29. As you move from A to B on the demand curve, total revenue changes from ______ to ______ and therefore the demand must be (elastic, unit elastic, or inelastic) between A and B.

 


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