Author Question: If the demand for a product increases in an increasing cost industry, as the market adjusts in the ... (Read 91 times)

fnuegbu · **on:** Jun 30, 2018

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run:
a. price will rise.
b. the firm's per-unit cost will increase.
c. the firm's per-unit cost will fall.
d. the market price will return to its initial position.

Question 2

What does the price elasticity of demand measure? What does a price elasticity of demand coefficient of 1.2 mean? Does the product have an elastic, unitary elastic or inelastic demand?

jasonq · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

b

Answer to Question 2

The price elasticity of demand measures buyer responsiveness to a price change. If the price elasticity of demand coefficient equals 1.2, this means that for every 1 percent change in price there will be a 1.2 percent change in the quantity demanded in the opposite direction. This implies that consumers are relatively responsive to a change in the price and therefore the demand for this product is elastic.