1) If the demand for umbrellas is price inelastic, a. changes in price do not af
ID: 1168462 • Letter: 1
Question
1) If the demand for umbrellas is price inelastic,
a. changes in price do not affect the number of umbrellas demanded.
b. if more umbrellas are sold as the result of a price decrease, total expenditures by consumers on umbrellas will decrease.
c. the percentage change in price is less than the percentage change in quantity demanded.
d. the percentage change in quantity demanded is greater than the percentage change in price.
e. none of the above
2) The cross-price elasticity of demand between goods X and Y
a. measures the responsiveness of the quantity of X demanded to changes in the price of Y.
b. is the percentage change in the price of Y divided by the percentage change in the quantity of X demanded.
c. is greater than zero if X and Y are substitutes.
d. both a and c
e. all of the above
3. Use the figure to calculate the income elasticity of demand when income increases from $25,000 to $30,000:
a. -0.10
b. -1.10
c. 0.1818
d. 0.20
e. 1.10
4) Use the figure below to calculate the cross-price elasticity of demand for good X when the price of good Y increases from $12 to $14:
a. 0.645
b. 0.42
c. 0.20
d. 2.00
e. 15.38
5) When demand is inelastic,
a. quantity sold does not increase when price decreases.
b. selling one more unit of output causes marginal revenue to increase.
c. selling one more unit of output cause total revenue to increase.
d. Buyers are not very responsive to changes in the price of the product.
e. The percentage change in quantity demanded will exceed the percentage change in price (in absolute value).
6) To answer the question, refer to the following table showing a demand schedule:
Price
Quantity demanded
$200
1000
150
1400
100
1800
If price falls from $200 to $150, what is the elasticity of demand over this range?
a. -0.625
b. -1.0
c. -1.17
d. -2.5
e. -3.0
7) If the price elasticity of demand for a good is -0.8 and quantity demanded decreases by 40%, price must have
a. increased by 5%.
b. increased by 32%.
c. decreased by 20%.
d. decreased by 32%.
e. none of the above
8) The demand for heart surgery is price inelastic. So it follows that
a. the percentage change in price is less than the resulting percentage change in quantity demanded.
b. if the price of heart surgery increases, total expenditure by consumers on heart surgery will rise.
c. changes in price do not affect the number of operations demanded.
d. both a and b
e. all of the above
9) If a drought increases the price of corn by 10% and decreases the quantity of corn demanded by 5%, then demand for corn is
a. elastic and total revenue to corn farmers will decrease.
b. inelastic and total revenue to corn farmers will decrease.
c. elastic and total revenue to corn farmers will increase.
d. inelastic and total revenue to corn farmers will increase.
10) Consider the statement: "When the British government tripled university fees for foreign students in Great Britain, about one-half of them left to study in other countries." The implied price elasticity of demand by foreigners for a British education is (in absolute value)
a. less than 1.
b. equal to 1.
c. between 1.0 and 1.5.
d. greater than 1.5.
11) The fact that the cross-price elasticity of natural gas with respect to the price of fuel oil is 0.4 implies that
a. natural gas and fuel oil are substitutes.
b. natural gas is a normal good.
c. the quantity of natural gas demanded will decrease by 1.6% when the price of fuel oil decreases by 4%.
d. both a and c
12) When demand is elastic,
a. marginal revenue is negative.
b. the percentage change in price exceeds the percentage change in quantity.
c. an increase in price causes total revenue to rise.
d. both b and c
e. none of the above
13) In the graph shown below, the demand for good X shifts due to a change in income. Holding the price of good X constant at $200, answer the following questions:
a. The graph shows how the demand
for X shifts when income decreases from $45,000 to $42,000. Using the information in the graph, the income elasticity of demand for X is calculated to be _________.
b. Good X is a(n) ____________good.
14) In the graph shown below, the demand for good X shifts due to a change in the price of a related good Y. Holding the price of good X constant at $200, answer the following questions:
a. The graph shows how the demand for X shifts when the price of related good Y decreases from $120 to $100. Using the information in the graph, the cross-price elasticity of demand for X and Y is calculated to be _________.
b. Goods X and Y are ________________.
15) Using the following demand schedule, calculate total revenue, marginal revenue, and price elasticity of demand. Then show the relation among marginal revenue, price, and elasticity of demand.
Price
Quantity demanded
Total
revenue
Marginal
revenue
Elasticity of demand
$100
40
_______
xx
xx
90
50
_______
_______
_______
80
60
_______
_______
_______
70
70
_______
_______
_______
60
80
_______
_______
_______
50
90
_______
_______
_______
Price
Quantity demanded
$200
1000
150
1400
100
1800
Explanation / Answer
(1) Correct option (b)
Assuming demand is price inelastic (but not fully inelastic), a 1% change in price results in a less than 1% change in quantity demanded, and total revenue decreases.
(2) Correct option (d)
Cross price elasticity between X & Y measures change in quantity demanded of X for a 1% change in price of Y. If cross price elasticity is positive, the goods are substitutes: Change in price of one changes the quantity demanded of the other in the same direction.
(3) & (4): Image is not visible.
(5) Correct option (d).
When demand is inelastic, a change in price does not result in a big change in quantity demanded.
(6) Elasticity of demand = change in quantity demanded / change in price
= [(150 - 200) / 200] / [(1400 - 1000) / 1000]
= - 0.25 / 0.40 = - 0.625
(7) Elasticity of demand = change in quantity demanded / change in price
- 0.80 = 0.4 / change in price
Change in price = 0.4 / -0.8 = - 0.5
That is, when quantity increased 40%, price has decreased 50%.
(8) Correct option (b).
When demand is inelastic, a change in price changes the quantity demanded less than proportionately, so when price increases, total revenue increases.
(9) Correct option (d)
Change in quantity is less than the change in price, so demand is inelastic & a price increase will increase revenue.
(10) Correct option (a)
Change in price (Fee) = 200%
Change in demand = - 50%
Price elasticity = - 50% / 200% = - 0.25 < 1
(11) Correct option (d)
A positive cross price elasticity means the goods are substitutes.
When cross price elasticity is 0.4, then 1% decrease in fuel price will decrease demand of natural gas by 0.4%.
So 4% decrease in fuel price will decrease demand of natural gas by 1.6%.
(12) Correct option (e)
All statements are incorrect.
NOTE: Out of total 15 questions, 10 have been answered (4 questions have missing image)
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