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Elasticity

The document discusses concepts related to elasticity including: 1. Goods with many substitutes or that are luxuries tend to have inelastic demand. 2. Using the midpoint method, the price elasticity of demand for a good that fell from 110 to 90 units when the price rose from $8 to $12 is 1/2. 3. A perfectly elastic demand is represented by a horizontal demand curve.

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Dati Papinashvili
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16 views2 pages

Elasticity

The document discusses concepts related to elasticity including: 1. Goods with many substitutes or that are luxuries tend to have inelastic demand. 2. Using the midpoint method, the price elasticity of demand for a good that fell from 110 to 90 units when the price rose from $8 to $12 is 1/2. 3. A perfectly elastic demand is represented by a horizontal demand curve.

Uploaded by

Dati Papinashvili
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as RTF, PDF, TXT or read online on Scribd
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Elasticity

1. A good will tend to have an inelastic demand if:


a. the good has many close substitutes.
b. the good is a luxury.
c. the market is defined very broadly.
d. the time horizon is long.

2. The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90
units. Calculated with the midpoint method, the price elasticity of demand is
a. 1/5.
b. 1/2.
c. 2.
d. 5.

3. A perfectly elastic demand is represented graphically by a:


a. relatively steep demand curve.
b. relatively flat demand curve.
c. vertical demand curve.
d. horizontal demand curve.

4. What effect will an increase in the price have on Total Revenue, if demand is elastic?
a. Total Revenue will increase.
b. Total Revenue will decrease.
c. Total Revenue will first decrease and then increase.
d. Total Revenue will remain unchanged.

5. The price elasticity of demand tends to be more elastic:


a. at points further up and to the left along the demand curve.
b. at points further down and to the right along the demand curve.
c. when the demand curve becomes steeper.
d. when the demand curve is vertical.
6. Suppose that General Cars increases the price of its Cadiclap model from $13,500 to $16,500.
As a result of this, the quantity demanded of the Cadiclap model decreases from 600,000 to
400,000 per year. Find the price elasticity of demand of the Cadiclap using the Mid-Point
method.
a. -3.0
b. -0.5
1
c. -2.0
d. -0.3

7. If a firm needs to increase its Total Revenue, the firm should ________ the price, if the
demand for its product is ________.
a. drop, inelastic
b. raise, elastic
c. drop, elastic
d. drop, unit elastic

8. Suppose that a good has an income elasticity of demand of -2.0. This means that the good is:
a. normal.
b. inferior.
c. a substitute.
d. a complement.

9. If two goods have a cross-price elasticity of demand of -0.8. This means that these goods are:
a. normal.
b. inferior.
c. substitutes.
d. complements.

10. The price of good A increases from $4.50 to $5.50. This causes the quantity demanded of
good B to increase from 900 to 1100 units per month. Find the cross price elasticity of demand
using the Mid-Point method.
a. -1.0
b. +2.0
c. +1.0
d. -2.0

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