If a section of a demand curve is elastic, what will happen to the quantity demanded if there is an increase in price?(1 point)

Question

2.If income levels of consumers within a given economy increase, what would happen to the demand curve for cell phones, a normal good, and the demand curve for instant noodles, an inferior good?(1 point)
Responses

The demand curves would both shift to the right.
The demand curves would both shift to the right.

The demand curve for cell phones would shift to the right, and the demand curve for instant noodles would shift to the left.
The demand curve for cell phones would shift to the right, and the demand curve for instant noodles would shift to the left.

The demand curve for cell phones would shift to the left, and the demand curve for instant noodles would shift to the right.
The demand curve for cell phones would shift to the left, and the demand curve for instant noodles would shift to the right.

The demand curve for cell phones would shift to the right, and the demand curve for instant noodles would remain unchanged.
The demand curve for cell phones would shift to the right, and the demand curve for instant noodles would remain unchanged.
3.If a firm's fixed costs are larger than its variable costs, does this mean the firm should shut down operation in the short run? Explain. (1 point)
Responses

This does not necessarily mean that it should shut down, because that decision depends on whether total revenue is larger than variable costs.
This does not necessarily mean that it should shut down, because that decision depends on whether total revenue is larger than variable costs.

Yes, the firm should shut down because this means that the firm is not covering its fixed costs.
Yes, the firm should shut down because this means that the firm is not covering its fixed costs.

Yes, the firm should shut down because it is incurring a loss.
Yes, the firm should shut down because it is incurring a loss.

This does not necessarily mean that it should shut down, because that decision depends on whether marginal revenue is equal to marginal cost.

Answer 1

1. If a section of a demand curve is elastic, an increase in price will lead to a proportionally larger decrease in the quantity demanded. Specifically, when demand is elastic, consumers are responsive to price changes, so a rise in price will cause the quantity demanded to decrease significantly.

2. If income levels of consumers within a given economy increase:

   • The demand curve for cell phones, which is a normal good, would shift to the right (increase), as consumers tend to buy more of normal goods when their income rises.
   • The demand curve for instant noodles, which is an inferior good, would shift to the left (decrease), as consumers tend to buy less of inferior goods when their income increases.

Thus, the correct response is: "The demand curve for cell phones would shift to the right, and the demand curve for instant noodles would shift to the left."

3. If a firm's fixed costs are larger than its variable costs, this does not necessarily mean that it should shut down operations in the short run. The decision to shut down depends on whether total revenue is larger than variable costs. If the firm's total revenue can cover its variable costs, it may still operate in the short run, even if it is unable to cover fixed costs. Therefore, the correct response is: "This does not necessarily mean that it should shut down, because that decision depends on whether total revenue is larger than variable costs."