Exam #2 Econ 112 Royce Vaughn, King\'s College E. perfectly inelastkc 5. The pri

Question

Exam #2 Econ 112 Royce Vaughn, King's College E. perfectly inelastkc 5. The price of good y increases from $4 to $9 units. The goods are: A. Substitutes per unit and quantity demanded for good x decreases from 200 to 1 unit 50 C. Unrelated Goods D. Inelastic Goods 6. Income increases by 20% and A. Normal good B. Inferior good C. Not good D. Can't say for sure quantity demanded for good x decreases by 5% Good x is a(n) 7. Quantity supplied decreases from 70 to s0 units when price decreases from $200 to $120 per unit. Elasticity of suppl A. 1.5 B. 0.33 C. 0.67 D. 0.5 8. The elasticity value calculated in the previous question indicated that supply is A. perfectly elastic B. elastic (relatively) C unit elastic D. inelastic (relatively) E. perfectly inelastic 9. When producers have more time to respond to price changes, supply will ikely be more A. Elastic B. Inelastic C. Unit elastic D. Can't say for sure

Explanation / Answer

5.

B

Since price increase of one goods decreases the consumption of anther good, then it is the example of complementary goods.

6.

B.

For an inferior good, demand comes down with increase in income.

7.

C.

Working note:

Elasticity of supply = ((50-70)/(70+50)/2)/((120-200)/(120+200)/2) = .67

8.

D

Since elasticity of supply is less than 1, hence it is relatively inelastic in nature.

9.

A

Here, suppliers will have more time to make adjustments. So, supply will become more elastic.

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