Question

1.Pick the statement that BEST describes the LAW OF DIMINISHING MARGINAL UTILITY.

	A.	An additional lane of highway will be LESS useful than the previous lane built
	B.	An additional lane of highway will be MORE useful than the previous lane built
	C.	An additional lane of highway will have a harmful effect on society
	D.	An additional lane of highway will always be worth its cost

2.

SUGAR (and other ingredients) in the making of candy bars is

	A.	Variable
	B.	Fixed

3.

A gasoline station, very near a professional football stadium, parks cars on its lot to make money on game days. Last year it charged $10.00 per car and parked 700 cars. This year it lowered the parking price to $6.00 and parked 1,000 cars. Is the demand for this parking lot INELASTIC or ELASTIC?

	A.	Inelastic
	B.	Elastic

4.

Last year, a local amusement park sold 10,000 tickets at $40.00 each. This year, it lowered the ticket price to $30.00 and sold 15,000 tickets. Is the demand for this amusement park INELASTIC or ELASTIC?

	A.	Inelastic
	B.	Elastic

Answer 1

Ans.1- (A)

Law of diminishing marginal utility states that additional utility received from consuming an additional unit of a good decreases as more of that good is consumed.

Ans.2- Variable

The more the candy bar is made, the more sugar will be required so it's Variable.

Ans.3- Elastic

Price elasticity of demand= % change in quantity demanded/ % change in price = 42.86/ 40 = 1.0715

Ans.4- Elastic

Price elasticity of demand = % change in quantity demanded/ % change in price = 50/25 = 2