Introduction to Micro Economics Midterm 2 Dr. Boukhris Name: ID: 1/ Which of the

Question

Introduction to Micro Economics Midterm 2 Dr. Boukhris Name: ID: 1/ Which of the following is not characteristic of the demand for a commodity that is elastie? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue declines if price is increased. D. The elasticity coefficient is less than one. 2/ The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a: A. I percent reduction in price. B. 12 percent reduction in price. C. 40 percent reduction in price. D. 20 percent reduction in price 3/ The price elasticity of demand is generally: A. negative, but the minus sign is ignored. B. positive, but the plus sign is ignored C. positive for normal goods and negative for inferior goods. D. positive because price and quantity demanded are inversely related. 4/ Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded: A. increased by 7 percent. B. decreased by 7 percent. C. decreased by 9 percent. D. decreased by 1.75 percent. 5/ Which of the following statements is not correct? A. If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic. B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases C. Total revenue will not change if price varies within a range where the elasticity coefficient is unity. D. Demand tends to be elastic at high prices and inelastic at low prices. 6/ If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is S6, then: A. the demand for the product is elastic in the $6-$5 price range. B. the demand for the product must have increased. C. elasticity of demand is 0.74. D. the demand for the product is inelastic in the $6-$5 price range.

Explanation / Answer

Ans)

1.
D. The elasticity coefficient is less than one.
The elasticity is less than one means that it is relatively inelastic.

2.
% change in price=Price elasticity of demand* % change in quantity demand
% change in price=0.80*16
% change in price=12.8

3.
A. negative,but the minus sign is ignored.
Price elasticity is negative because the price and quantity demanded are inversely related.

4.
B. decreases by 7 percent
% change in quantity demanded=% change in price* elasticity
=2*3.5
=7
The sign is negative because the price and quantity demanded are inversely related.

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