Question

1. Change in the price of an item may affect the income elasticity of demand. True or false?

2. Why are automated teller machines (ATMs) relatively more common in countries with higher labor costs?

3. Explain the differences between the short-run and long run decisions to continue in business?

Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10,000/p. If the long-run supply curve is horizontal, then how many pounds of potatoes will be consumed in total?

Answer 1

1.

False

Income elasticity of demand, involves changes in demand by the people and income of the people. So, income elasticity of demand does not involve price.

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2.

Due to higher labor cost, it becomes very expensive for the banks and financial institutions to put people in place for the disbursement of cash. Hence, banks and financial institutions set ATM machines at different places for the disbursement and convenience of people. It reduces the cost for these institutions and they become more efficient. So, there are more number of ATMs to save cost.

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