Question

# Please see attachments for details Solved by verified expert

1. b - Relatively Inelastic

2. c - Perfectly Inelastic

3. a - Complementary

4. d - -1.15

5. c - the cross elasticity is negative

6. b - relatively elastic

7. a - F-test

8. c - a high proportion of the variation in the dependent variable can be accounted for by the variation in the independent variables

9. b - R2

10. b - |R2| > 0.90

11. Q = 2000 - 4(600)+6(150)+5(50)+5(500)-4(200)

Q = 2450 units

12. 3450 = 2000-4P+6(150)+5(50)+5(500)-4(200)

P = \$350

13. Q = 2000 - 4(600-50)+6(150)+5(50)+5(500)-4(200)

Q = 2000 - 4(550)+6(150)+5(50)+5(500)-4(200)

Q = 2650 units

Step-by-step explanation

1. Relatively inelastic because a huge change in price is causing a little change in demand which means demand is relatively insensitive towards the price. This means a huge change in price is not changing much of the demand habits of the customer for oil. This also means that the value of elasticity is lesser than 1.0

2. Perfectly inelastic because there are a lot of substitutes for a good which means that the customer will have a lot of options to choose from. This will not change the customer's demand due to the price as the customer can get the same product's substitute and quantity at much cheaper rates.

3. Complementary because the decrease in the purchase of tennis socks means that their demand has decreased and hence there will be a rise in prices of tennis socks. On the other hand, there is a rise in prices of tennis sneakers depicting that both goods have the same reaction to the changes in the purchases of one good. As both the goods have the same reaction to changes in price or demand, we can say that tennis socks and tennis sneakers are complementary goods.

4. Arc elasticity measures elasticity at the midpoint between two selected points on the demand curve by using the midpoint between two points.

Arc Ed = [(Qd2 - Qd1)/Midpoint Qd] / [(P2 - P1)/Midpoint P]

Midpoint Q = (Q1 + Q2)/2

Midpoint P = (P1 + P2)/2

Let, Old price of head of lettuce be P1 = 0.5 cents

New price of head of lettuce be P2 = \$1

Old demand for lettuce be Q1 = 18

New demand for lettuce be Q2 = 8

Midpoint Q = (1+0.5)/2 = 0.75

Midpoint P = (18+8)/2 = 13

Arc Ed = [(8-18)/13] / [(1-0.5)/0.75]

= -1.15

5. The total revenue is the product of price and quantity demanded of the product.

Since there is a fall in the price of the good, that means there will be a rise in the demand because overall there has been a fall in the total revenue. A negative total revenue can be obtained by the product of negative price and positive quantity demanded.

Therefore, the cross elasticity of the product will be negative as there is a fall in prices and an increase in demand showcasing a negative relationship.

6. Relatively elastic because for the government to increase the revenue, they will be required to increase the excise tax and with relatively elastic demand, the citizens will be demanding goods even at big changes in prices which will be beneficial for the government as more purchases will render more excise tax.

7. F-test because in a regression test, it is required to check the relationship between independent and dependent variables to be linear and F-test helps in giving that surety that whether or not the linear regression model fits the database than a model with no predictor variable.

9. R2 because adding independent variables to a multiple linear regression model will always increase the amount of explained variance in the dependent variable (R2)