Question

1. If we are on the elastic portion of linear demand curve a decrease in price ...... total revenue

a. Decrease

b. Increase

c. Does not change

d. any of the above

2. The Dubai Chamber estimated, in 2011, that the cross price elasticity of Brazilian beef with respect to the US beef is 33.This result means

A. A 10% increase in the price of US beef imports will result in a 33% increase in the quantity of beef imports from Brazil

B. A 10% increase in the price of US beef imports will result in a 33% increase in the price of beef imports from Brazil

C. A 10% increase in the price of US beef imports will result in a 33% decrease in the quantity of beef imports from Brazil.

D. A 10% increase in the price of US beef imports will result in a 33% decrease in the price of beef imports from Brazil

3. Assume that the demand for good X is perfectly inelastic. If the price increases by 10 %, the quantity demanded will:

A. Decrease by 10%

B. Decrease by less than 10%

C. Decrease by 0%

D. Decrease by an infinitely large amount

4. Adam advertises his used motorcycle for 52,000 in the newspaper. He would be willing to sell It for as low a $1,000 but is able to sell for 1400 on trade. Adam receives
A. producer surplus of $400
B. producer surplus of $600
C. consumer surplus of $400
D. consumer surplus of $600

Answer 1

Ans.1- (B)

When demand is elastic, a decrease in price leads to a greater rise in quantity demanded and hence total revenue rises.

Ans.2- (A)

cross price elasticity of Brazilian beef with respect to the US beef = % change in quantity demanded for Brazilian beef/ % change in price for US beef

3.3 = % change in quantity demanded for Brazilian beef/10

33 = % change in quantity demanded for Brazilian beef

Thus, correct answer is A.

Ans.3- (C)

If demand is perfectly inelastic then any change in price doesn't affect the quantity demanded. So, here 10% increase in price leaves quantity demanded unchanged.

Ans.4- (A)

Producer surplus= price of selling - price at which he was willing to sell = 1400 - 1000 = 400

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