Question

If demand for a product is perfectly inelastic, a change in price will not change total revenue.

a) True

b) False

What is a market failure?

a) It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

b) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.

c) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

d) It refers to a breakdown in a market economy because of widespread corruption in government.

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.

a) True

b) False

Answer 1

Ans.1

The Statement is True,

because there are no close substitutes , when the product is perfectly inelastic.

Ans.2

Correct Option is c) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

Optimum level is where MSB = MSC,

So , inability to reach that means the market is inefficient in allocating resources hence market failure can arise.

Ans.3.

The Statement is True

Elasticity = %change in Q / % change in P

So , of the change in Q is more than the price , the product elasticity is more. because higher value means higher the elasticity, which means that any change in price has a bigger impact on the quantity being demanded.

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