1/ Which of the following is not characteristic of the demand for a commodity th

Question

1/ Which of the following is not characteristic of the demand for a commodity that is elastic? 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. demand curve for widgets, a 16 percent increase in sales implies a: A. 1 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.

Explanation / Answer

(1) When we say that the demand is elastic, it means that the coefiicient of elasticity is greater than one. So the correct answer to this question is option d.

(2) The price elasticty of demand is 0.80. Increase in quantity demanded is 16%. Elasticty=(%change in quantity demanded/%change in price).

so %change in price=%change in quantity demanded/elasticty=16/0.80=20%

Hence the correct answer is 20% reduction in price. This is option d.

(3) According to law of demand, there is a negative relationship between price and demand. SO when price increases demand falls. This implies that the elasticty is usually negative but we ignore the negative sign for simplicity. Thus the correct answer is option a.

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