Question

8.

When the price increases by 30 percent and the quantity demanded drops by 30 percent, the price elasticity of demand is

unitary elastic.

elastic.

perfectly inelastic.

inelastic.

perfectly inelastic.

9.

If the cross-price elasticity of demand between Good A and Good B is 2 and the percentage change in price of Good A is 5 percent, what is the percentage change in quantity demanded of Good B?

-3 percent

1.50 percent

10 percent

3 percent

-1.25 percent

Answer 1

8. Answer: Unitary elastic

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

Price elasticity of demand = 30% / 30% = 1

If Price elasticity of demand = 1, demand is unitary elastic.

9. Answer: 10%

Cross-price elasticity of demand = % change in quantity demanded for good B / % change in price of good A

2 =  % change in quantity demanded for good B / 5%

2*5% =  % change in quantity demanded for good B

10% = % change in quantity demanded for good B