Question

A life-saving medicine without any close substitutes will tend to have a small elasticity of demand. a large elasticity of demand. a small elasticity of supply. a large elasticity of supply. 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 1/5. 1/2. 2. 5. A linear, downward-sloping demand curve is inelastic unit elastic. elastic. inelastic at some points, and elastic at others. The ability of firms to enter and exit a market over time means that, in the long run, the demand curve is more elastic. the demand curve is less elastic. the supply curve is more elastic. the supply curve is less elastic. An increase in the supply of a good will decrease the total revenue producers receive if the demand curve is inelastic. the demand curve is elastic. the supply curve is inelastic. the supply curve is elastic. Over time, technological advance increases consumers’ incomes and reduces the price of smartphones. Each of these forces increases the amount consumers spend on smartphones if the income elasticity of demand is greater than and if the price elasticity of demand is greater than . zero, zero zero, one one, zero one, one

Answer 1

(1) A life-saving medicine without any close substitutes will tend to have a small elasticity of demand.

(A necessity good will have inelastic demand, so elasticity will be low).

(2) Elasticity = 1/2

Elasticity = (Change in quantity / Average quantity) / (Change in price /Average price)

= [(90 - 110) / (90 + 110)] / [(12 - 8) / (12 + 8)]

= (-20 / 200) / (4 / 20)

= -0.5 (Absolute value = 0.5 = 1/2)

(3) A linear, downward-sloping demand curve is inelastic at some points, and elastic at others.

[As we move upward (downward) along demand curve, demand becomes more elastic (inelastic)].

(4) The ability of firms to enter and exit a market over time means that, in the long run, the demand curve is more elastic.

(In long run, entry of firms make more substitutes available to consumers, making demand more elastic).

NOTE: As per Answering Policy, 1st 4 questions are answered.