Question

26. If the income elasticity of demand is -0.80 and the quantity demanded increases by 10 percent as a result of a change in income, income must be

a. increased by 8 percent
b. increased by 80 percent
c. decreased by 8 percent.
d. decreased by 12.5 percent.

27. When the demand is unitary

a. The marginal income is zero.
b. the percentage change in the amount is equal to the percentage change in the price.
c. An increase in the price has no effect on the quantity demanded.
d. both a and B
e. All of the above

28. When marginal income is negative

a. MR <P.
b is less than one.
c. An increase in the price makes total revenues increase.
d. both a and c
e. All of the above

29. Which of the following will NOT affect the price elasticity of a product?

a. The number of substitutes.
b. How much time consumers have to adapt to changes in prices.
c. The cost of producing the product
d. The percentage of the consumer budget that is spent on the product.
e. All of the above will affect the elasticity of demand for a product.

Answer 1

26. d. decreased by 12.5 percent.
(Change in income = Change in quantity demanded/income elasticity = 10%/(-0.8) = -12.5%)

27. d. both a and B
(When demand is unitary, marginal income is zero, and percentage change in quantity = percentage change in price.)

28. e. All of the above
(When marginal income is negative, MR < P, elasticity is less than 1, and increase in price increase revenue.)

29. c. The cost of producing the product
(Cost of producing does not affect the price elasticity.)