Microeconomics 2302 Potential questions and study guide for Exam 2022

Microeconomics 2302 Potential questions
and study guide for Exam 2

ELASTICITY QUESTION 1
A)
Elasticity is considered as a measure of the sensitivity of variable towards change in another
variable. Further, the price elasticity measures the sensitivity of quantum demanded and provided
relating to price changes.
B)
Firms might care about price elasticity of demand, as if the product has elastic demand, then it
states that the amount that is demanded will make changes as there is also a change in the
product price.
C)
In case there is elastic supply, then produce might care, as they can raise the output without
increasing cost. However, firms might care if there inelastic supply, because it is complex to
make changes in production in a specified time period.
D)
Firms might care about cross elasticity of demand, as it states about the reaction of customer
towards the changes in their product prices. It helps the firms in setting the best selling price for
their products.
E)
Government and firms might care about the income elasticity of demand; it is because it helps in
classifying goods, demand forecasting, product pricing, diversifying, collecting taxes and
designing strategies.
F
The formula says about the assessment of the amount of quantity demanded of a product makes
response to price changes of that product.

Yes, information can be calculated as required by calculation of answer by considering the %
amended (increase or decrease) in the quantity demanded and % by the % amended (increase or
decrease) in price.
To a higher extent, it can provide information about the response of product’s price change.
G)
i. Price Elasticity of Demand: This is stated as the comparative response of the demanded
quantity to price changes. It is stated as the % change in the quantity that is demanded to % price
change.
Price Elasticity of Supply: This is the comparative response towards the quantity towards price
changes. It is stated as the percentage quantity supplied change to a percentage price change.
Income Elasticity of Demand: This is the comparative demand response towards the income
change or percentage demand change because of the percentage change in income.
Cross Elasticity of Demand:This the comparative demand response to price changes of other
good, this quantifies the demand determinant’s other prices.
ELASTICITY QUESTION 2
A
Total revenue test help firm in its overall pricing strategy, and determines the extent by which a
product is either elastic or inelastic, which thus helps the firm in maximizing its total revenue.
B
The variables of price elasticity are namely; availability of substitutes, the time horizon, and if
or if not the good is a necessity or a luxury. If there is an increment in apple juice price, then one
can switch to orange, pineapple or any other juice, nut if there is an increment in gas price, then
there is no other option. Another example is Disney World Ticket.
C
Time is essential to the farmer as in short-run when tomatoes price increase they can increase the
supplied quantity, and in the long run, they can purchase more land.

D
Pepsico Executive will benefit because in case a product is of better quality, then the market
price increases, and there is more monopoly of that product.
i. It supports better decision making because firms make use cross elasticity of demand doe
measuring the significance of complementary products and in which manner these products
makes a comparison to their own products.
E
An analyst would take benefit, as the cross elasticity of demand determines the quantity
demanded elasticity and responsiveness for coca-cola, showing that it would increase product
supply, creating a monopoly, increasing reasonable prices and maximizing revenue.
i. The understanding supports better decision making as it forms adequate opportunities to
increase product supply while appealing customers because of better quality.
ELASTICITY QUESTION 3
A
i. The implicit costs are stated as opportunity cost, whereas the explicit costs are the paid
expenditures with the own tangible assets of the company.
ii. Organization production should care about explicit cos; on the other implicit cost does not
directly impact the organization.
B
i. Production function assists the technological relation within quantities of physical inputs and
output quantity of the product.
ii. Production functions tell the firm about how inputs are affected and what factors contribute to
the specified economic growth.
iii.By addressing the allocative efficiency in the usage of factor inputs within production and the
resultant income distribution to those factors, at the same time summarizing technological issues
of attaining efficiency.