Table 5-5 The following table shows a portion of the demand schedule for a parti
ID: 1126315 • Letter: T
Question
Table 5-5 The following table shows a portion of the demand schedule for a particular good at vanous levels of income Quantity Demanded Income $10,000) Quantity Demanded Income $7.500 6 Quantity Demanded (Income = S5.000) Price $24 $20 $16 S12 $8 $4 12 10 12 12 15 18 20 24 4. Refer to Table 5-5. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20? a. 0.56 b. 0.75 c. 1.33 d. 1.80 5. Refer to Table 5-5. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000? a. 0.00 b. 0.50 c. 1.00 d. 1.50 6. Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. Improvements in production technology reduce the costs of producing laptop computers. b. The number of firms selling laptop computers decreases. c. Consumers' income decreases, and laptop computers are a normal good. d. The number of consumers buying laptop computers decreases.Explanation / Answer
4.
D. 1.8
Working Note:
Price elasticity of demand = % change in quantity demanded / % change in price
Price elasticity of demand = ((9-6)/(9+6)/2)/((16-20)/(16+20)/2)
Price elasticity of demand = -1.8 or 1.8 (absolute value)
5.
C. 1.0
Working note:
Income elasticity of demand = ((12-6)/(12+6)/2)/((10000-5000)/(10000+5000)/2)
Income elasticity of demand = 1.0
6.
B
Explanation:
Decrease in number of firms will decrease the supply and increase the price. As a result, price will touch the price ceiling level and it will become binding.
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