Homework Clinic
Social Science Clinic => Economics => Topic started by: neverstopbelieb on Jun 29, 2018
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Suppose a movie theater raises its ticket prices by 10 and the total revenue it receives in ticket sales doesn't change one bit from the previous week.
What can you say about the price elasticity of demand at that new price? Could this go on indefinitely? In other words, would continued price increases leave total revenue unchanged without bound? Why or why not?
Question 2
How might a U.S. federal budget surplus affect the balance of trade? (Assume exchange rates are stated in terms of foreign currency per U.S. dollar.)
A) A federal budget surplus raises interest rates, which raises exchange rates, and increases the balance of trade.
B) A federal budget surplus reduces interest rates, which raises exchange rates, and reduces the balance of trade.
C) A federal budget surplus raises interest rates, which raises exchange rates, and reduces the balance of trade.
D) A federal budget surplus reduces interest rates, which reduces exchange rates and increases the balance of trade.
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Answer to Question 1
You could conclude that the movie theater tickets unitary price elastic at this point on the demand curve. This could not go on forever. As ticket prices rose further there would come a point where one would reach the elastic portion of the demand curve and this would lead to a decline in revenue.
Answer to Question 2
D