Question

1. Given that the price of a shirt decreased (in 2008) from $35.00 per shirt with 40 thousand shirts demanded and (in 2009) to $25.00 per shirt with 80 thousand shirts demanded. Using the midpoint formula, calculate the price elasticity of demand for shirts.

A.|0.10|

B.|-0.20|

C.|1.0|

D.|-2.0|

E.|-0.05|

3.For most consumers, a snack food such as potato chips has a price elasticity of demand that is

unitary elastic.

A.perfectly inelastic.

B.extremely elastic, almost perfectly elastic.

C.All of the above are correct.

D.None of the above are correct.

5.To determine the utility maximizing consumption of two products one uses the formula that is called the rule for maximizing utility:

A.P1/P2=MU1/MU2 which also is stated as MU1/PU1=MU2/P2..

B.Explains the Diamond-Water Paradox.

C.Calculates the utility maximizing consumption of the two goods.

D.All of the above are correct.

E.None of the above are correct.

PLS With explanation why is this the correct answer.

Answer 1

1 - Option D

2.0

Ed = (40/60)/(-10/30)

= 0.66/-0.33

= -2.0

Ed = -(-2.0)

= 2

Hence option D will be correct

2 - Unitary elastic

This is because the price change in one product lead to the fall in demand and shift to other product as substitutes are avialable. It will not be perfectly elastic

3 - Option C

Calculates the utility maximisation condition of two goods

In this condition the utility is maximised, when the per dollar MU attained for the both goods is equals. If the values will not be equal , the utility will not be maximised and consumer will not be fully satisfied. Hence Option c will be correct.