5)The price elasticity of demand for gasoline is 0.5 and the price elasticity of

Question

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

5. Ans: fall by 50 %   (i.e 0.5 = 25% / % decrease in price. Thus, % decrease in price = 25% / 0.5 = 50%

6. Ans: rise by 9.5 %   (i.e 2.1 = 20% / % increase in price. Thus, % increase in price = 20% / 2.1 = 9.5%

7. d. cross-price elasticity is positive

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