#1
2. Which of the following indicates an inelastic demand?
Price elasticity of 0.5
ExplanationQuantity demanded changes less than proportionally to price changes.
#2
10. If a good has a high income elasticity (>1), how is it classified?
Luxury good.
ExplanationDemand increases more than proportionally with income.
#3
1. What is price elasticity of demand?
The percentage change in quantity demanded divided by the percentage change in price.
ExplanationMeasurement of responsiveness of quantity demanded to price changes.
#4
4. How does an increase in income affect the demand for normal goods?
Increases demand.
ExplanationAs income rises, demand for normal goods rises.
#5
7. In the context of price elasticity, what is the midpoint formula used for?
Avoiding biased estimation of elasticity.
ExplanationProvides a consistent way to measure elasticity along linear demand curves.
#6
9. What is the primary determinant of the price elasticity of demand for a good?
Availability of substitutes.
ExplanationExtent to which consumers can switch to alternatives.
#7
11. Which of the following goods is likely to have an inelastic demand?
Generic medicines.
ExplanationConsumers are less responsive to price changes due to necessity.
#8
13. What happens to the price elasticity of demand as you move along a linear demand curve?
It remains constant.
ExplanationSlope of the demand curve is consistent, hence elasticity remains constant.
#9
14. If the percentage change in quantity demanded is greater than the percentage change in price, what type of elasticity does the demand exhibit?
Elastic.
ExplanationQuantity responds significantly to price changes.
#10
3. What does a cross-price elasticity of 0.7 between two goods imply?
The goods are substitutes.
ExplanationPositive relationship: if price of one increases, demand for the other increases.
#11
5. If the price elasticity of demand is -2.5, how will total revenue change when the price decreases?
Total revenue will increase.
ExplanationPrice decrease leads to proportionally larger increase in quantity demanded.
#12
6. What does a price elasticity of demand equal to -1.5 signify?
Perfectly elastic demand.
ExplanationQuantity demanded changes infinitely for any price change.
#13
8. If the demand for a good is perfectly elastic, what does it mean for the price and quantity?
Quantity can change, but price remains constant.
ExplanationConsumers are only willing to buy at a specific price.
#14
12. If the cross-price elasticity of two goods is negative, what can be concluded about their relationship?
They are complements.
ExplanationInverse relationship: if price of one increases, demand for the other decreases.
#15
15. How does the availability of close substitutes affect the price elasticity of demand?
Increases elasticity.
ExplanationMore substitutes make consumers more responsive to price changes.
#16
16. What is the relationship between price elasticity and total revenue for elastic demand?
As price decreases, total revenue decreases.
ExplanationIncrease in quantity sold does not offset decrease in price, hence total revenue decreases.