Explain why the demand for food is inelastic in terms of the substitution effect and diminishing returns
What will be an ideal response?
When the price of a good such as food falls, consumers usually shift demand from goods whose prices have remained constant to the reduced-price food. However, the substitution effect is modest in terms of food, as consumers will not consume an endlessly larger and larger amount of food. Thus, even as the price for a certain food commodity falls substantially, demand may not actually increase by much.
The same effect is true when you look at demand in elasticity in terms of diminishing returns. When a society has a high income, it is relatively saturated with food and other goods. This means that there are little gains from additional units of food, causing demand to be inelastic.
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The value of marginal product of labor
A) is the change in total product that results from selling one more unit of a good. B) is equal to the price of the good produced multiplied by the marginal product of labor. C) is equal to marginal revenue multiplied by the quantity. D) increases as the amount of labor employed increases.
If demand and supply both decrease
A) the equilibrium quantity definitely will decrease, and the market clearing price definitely will decrease. B) the equilibrium quantity definitely will decrease, and the market clearing price definitely will increase. C) the market clearing price definitely will decrease, but the change in the equilibrium quantity cannot be determined without more information. D) the equilibrium quantity definitely will decrease, but the change in market clearing price cannot be determined without more information.