ECON 705 Module 2 Exam Questions Solved Correctly Latest Update 2025

ECON 705 Module 2 Exam Questions Solved Correctly Latest Update 2025 1. If the price decreases by 4 percent. As a result, the quantity demanded increases by 12 percent. The price elasticity of demand is - Answers 12%/-4%=-3% Change in % Quantity demanded/change in % Price, Greater than 1 is elastic, less than 1 is inelastic, equal to 1 is unit elasticity 2. What is the relationship between elasticity and revenue - Answers When the price changes, consumers demand changes based on the price change. The response could be very dramatic (elastic) or not very responsive to change in price (inelastic). When demand is elastic, the relationship between price and revenue will be in the opposite direction. In elastic cases greater than one, when price increases elasticity, revenue decreases. When demand is inelastic, less than one, and price goes up, revenue goes up. Unit elasticity, no change for revenue. 3. A 7 percent reduction in the price of a product has zero effect on the dollar amount of consumer expenditure on the product. The price elasticity of demand is - Answers one, unit elastic. 4. What does the price elasticity of demand coefficient measure - Answers the responsivity of consumers with regards to any price change 5. define the price elasticity of demand - Answers the responsiveness of the quantity demanded of a product or service when its price is changed by one unit. The nature of the price elasticity of demand can be elastic, inelastic, or unit elastic. 6. What is characteristic of the demand for a commodity that is elastic - Answers many substitutes, competitive markets, high percentage of income, bought frequently 7. What is characteristic of the demand for a commodity that is inelastic - Answers no substitutes, little competition, bought infrequently, small % of income, short-run, location 8. What is unit elastic - Answers The elasticity of demand is always one, regardless of price change. 9. When the price of a good goes up and demand is unit elastic, what would happen to the total revenue - Answers it is not affected and does not change. 10. What is the basic difference between the short run and the long run - Answers short run means time frame where at least one resource or production is fixed, long run all factors of production are variable. EX: Fast food restaurant, fixed size in short run unless you build in the long run. 11. What is the relationship between the total product and marginal product? - Answers total product means total level of production/ marginal product means additional product. As the marginal product or labor is up and up, total product goes up. The change in total product means an increase in the marginal product. 12. What is the relationship between the total cost concept and average cost concepts? For instance, if you know TC and Quantity, how do you calculate Average Total Cost? - Answers Total cost/quantity=ATC if you divide TC/VC/FC by quantity, you get Average total cost, average variable cost, average fixed costs 13. What is the vertical distance between Total Cost and Total Variable Cost? - Answers Total Fixed Cost b/c the total cost is the sum of total variable costs and the total fixed costs 14. Define the Marginal Cost - Answers is the change in the total costs divided by the change in quantity, marginal shift from one point to another 15. Average Total cost - Answers ATC=TC/quant 16. Average Variable cost - Answers AVC=VC/quant 17. Average fixed cost - Answers AFC=FC/quant 20. What is an implicit cost - Answers cost that does not come directly out of pocket, using home already paid for, an opportunity costs, a foregone benefit, leaving job to run coffee shop, lost salary 21. What is an explicit cost - Answers accounting cost, amount of money that you pay for resources for the production of goods, make payment at the time of purchases, goods and services that you pay for 18. Accounting Profit equals - Answers to sales/TotalRev - explicit costs.