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6.

Milk Market: With inelastic demand, consumers are less responsive to


price changes. So, even with a significant decrease in supply, the price
increase will be relatively larger to reduce demand to macth the reduced
supply.

Beef Market: With elastic demand, consumers are more responsive to


price changes. A smaller price increase will be sufficient to reduce
demand and match the reduced supply.

7.d

In both markets, a decrease in supply will lead to a decrease in


equilibrium quantity. This is because there are fewer goods available for
consumption.

8.b

Milk Market: With inelastic demand, consumers are less responsive to


price changes. So, the decrease in quantity demanded will be smaller
relative to the decrease in supply.

Beef Market: With elastic demand, consumers are more responsive to


price changes. So, the decrease in quantity demanded will be larger
relative to the decrease in supply.9.

A price ceiling is binding only if it is set below the equilibrium price. This
means that the government-imposed maximum price is lower than the
price the market would naturally reach. This creates a shortage, as the
quantity demanded exceeds the quantity supplied at the lower price.

11.b

This scenario highlights the importance of substitutes in influencing price


elasticity of demand.

* Diet Coke: There are likely few close substitutes for Diet Coke that Jane
would consider. This makes her demand for Diet Coke relatively inelastic,
meaning she is less responsive to price changes.

* Gourmet Cheese: There are many substitutes for gourmet cheese, such
as regular cheese or other types of snacks. This makes her demand for
gourmet cheese relatively elastic, meaning she is more responsive to
price changes.

Therefore, the availability of close substitutes is a key factor in


determining the price elasticity of demand for a product.

12.a
A person taking a prescription drug for a serious health condition like high
cholesterol is likely to have an inelastic demand for that drug. This means
that even if the price of the drug increases, the person will still need to
purchase it to maintain their health. Their demand is not very responsive
to price changes.

12.c

%P=(20-10)/15×100%=66.67%

Price elasticity of demand=0.9=∆Qd/66.67%

•∆Qd=60%

10.a

A price ceiling set below the equilibrium price will always cause an
increase in the quantity demanded and a decrease in the quantity
supplied, resulting in both a shortage and a deadweight loss.

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