1) If the supply curve is relatively flat, then the price elasticity of supply w
ID: 1202534 • Letter: 1
Question
1) If the supply curve is relatively flat, then the price elasticity of supply will be:
a. relatively large. b. relatively low. c. negative. d. decreasing at an increasing rate.
2)Last semester there were 5000 parking spaces available on campus. The price of a parking permit was $80 per semester, and the quantity demanded equaled the quantity supplied at this price. Suppose the number of parking spaces increases by 10% and the elasticity of demand for parking is 0.5. Parking Services should ________ the price of a permit by ________ to guarantee that quantity demanded will equal quantity supplied.
a. decrease; 10% b. decrease; 20% c. decrease; 5% d. increase; 10%
3)Two goods are complements if the: Select one:
a. price elasticity of each is greater than one. b. income elasticity of each is negative. c. cross-price elasticity is negative. d. cross-price elasticity is positive.
4)Suppose the price elasticity of supply for rocking chairs is 1.2 and the price increases by 20%. The quantity supplied will increase by ________ %. Select one:
a. 20 b. 24 c. 18 d. 12
5)The price elasticity of demand for gasoline is 0.5 and the price elasticity of supply for gasoline is 1.1. If demand rises by 25%, the price of gasoline will: Select one:
a. rise by 15.6%. b. fall by 15.6%. c. rise by 6.4%. d. fall by 6.4%.
6)The price elasticity of demand for wheat bread is 2.1 and the price elasticity of supply for wheat bread is 1.6. If demand falls by 20%, the price of wheat bread will: Select one:
a. rise by 5.41%. b. fall by 5.41%. c. rise by 18.5%. d. fall by 18.5%.
7)Good X and good Y are substitutes if the: Select one:
a. income elasticity of each is negative. b. income elasticity of each is positive. c. cross-price elasticity is negative. d. cross-price elasticity is positive.
Explanation / Answer
1. relatively large-it means a small change i price leads to a greater change in quantity supplied .
2. percentage change in quantity supplied = 10% or 0.1, in order to reach at the point of equilibiurm quantity demand must also be increased by 10% and to increase the quanty demand we have to lower the price ,now
Elasticity of demand = 0.5 , percentage change in quanity demand = 10%
Elasticity of demand = percentage change in quantity demand/ percentage change in price
0.5=0.1/percentage change in price
percentage change in price= 0.2 0r 20%
price will dcrease by 20%.
3.Two goods are complements if the cross-price elasticity is negative.- as the price of one good increases, the demand for the second good decreases.
4. 24
Elasticity of supply = Percentage change in quantity supplied /percentage change in price, where percentage change in price=20% or 0.2 and Elasticity of supply= 1.2
1.2= Percentage change in quantity supplied/ 0.2
Percentage change in quantity supplied= 24.
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