Question

1) In general the demand for a good with a lot of substitutes will be more ___________ than the demand for a good with less substitutes

A)

elastic

B)

inelastic

C)	unitary elastic

D) None of the above

2) A major finding in the RAND study  is

A)	copays or coinsurance rates are positively related to usage of health care services (higher copays, more usage of health services)

B)	copays or coinsurance rates are negatively related to usage of health care services (higher copays, LESS usage of health services)

C)	MEDICAID LOTTERY winners use more health care services than non-lottery winners

D) that it is NOT a randomized study

3) The elasticity of demand for A = - 1.62 is more ___________ than elasticity of Demand for B =

- 1.14

A)

elastic

B)

inelastic

C)	unitary elastic

D)

none of the above

4) In the previous question, which demand curve would probably be steeper?

A)	Demand for A

B)	Demand for B

C)	both are identically steep

D)	both are identically flat

E)	none of the above

Answer 1

1) A. Elastic

Availability of substitutes: Demand for those commodities which have substitutes are relatively more elastic. The reason being that when the price of a commodity falls in relation to its substitute, the consumers will go in for it and so its demand will increase. Commodities having no substitutes like cigarettes have inelastic demand.

3) A. Elastic

Ed > 1 is elastic. Greater Ed means greater elasticity.

4) B) Demand for good B.

More the elasticity flatter is the curve.

Less the elasticity steeper is the curve.