Decide whether you agree or
disagree and explain your answer.
a. if the elasticity of demand for cocaine is —.2 and the drug
enforcement administration succeeds in reducing supply
substantially, causing the street price of the drug to rise by
50%, buyers will spend less on cocaine.
b. every year christmas tree vendors bring tens of thousands of
trees from the forests of new england to new york city and
boston. during the last two years, the market has been very
competitive; as a result, price has fallen by 10 percent. if the
price elasticity of demand was —1.3, vendors would lose revenues
altogether as a result of the price decline.
c. if the demand for a good has unitary elasticity, or elasticity
is —1, it is always true that an increase in its price will lead to
more revenues for sellers taken as a whole.

A. Disagree

B. Disagree

C. Disagree

Explanation:

Elasticity of demand measures the responsiveness of quantity demanded to changes in price.

Demand is elastic if a small change in price leads to a greater change in quantity demanded. The absolute value of elastic demand is usually greater than 1.

Demand is inelastic if a small change in price has little or no effect on the quantity demanded. The absolute value of inelastic demand is usually less than 1.

Demand is unitary, if a change in price has the same proportional effect on quantity demanded. The absolute value of unitary elasticity of demand is equal to 1.

The absolute value of elasticity for cocaine is 0.2 which indicates that it has an inelastic demand, if price increases, there would be no change in the quantity demanded. Amount spent on cociaine would increase and producers revenue would rise.

The absolute value of elasticity for Christmas three is 1.3 which indicates that it has an elastic demand. If price falls, the quantity demanded would rise and revenue earned by sellers would rise as a result.

When elasticity of demand is unitary, an increase in price leads to the same proportional increase in revenue.

I hope my answer helps you