Question

Question 1

The following is the MOST PRECISE definition of the Own Price Elasticity of Demand:

Question 1 options:

A. Is the measure of how sensitive is the consumer to change in prices.

B. It measures the slope of the demand curve.

C It measures the percentage change in quantity demanded of good x as a result of a percentage change in price per unit of good x.

D. It measures the total change in quantity demanded of good x as a result of a total change in price per unit of good x.

Question 2

The following are characteristics related to a good with a highly Inelastic demand, EXCEPT:

Question 2 options:

A. Own price elasticity of demand, in absolute terms, is less than one.

B. The consumer has little sensibility to any change in price for that good.

C. The % change in quantity is smaller than the corresponding % change in price.

D. If price increases, total revenue will decline.

Question 3

The following are some characteristics of a good with a highly Elastic demand, EXCEPT:

Question 3 options:

A. Has close substitutes

B. Is addictive in nature.

C. It's unnecessary.

D. It has a low adjustment cost in consumption.

Question 4

The following is the value of price elasticity between the following two points:

A: {P1 = 2, Q1=20 }

B: {P2 = 4, Q2=10 }

Question 4 options:

A. lEpl = 2

B. Ep = -1/2

C. lEpl=1/2

D. lEpl = 1

Question 5

Given the following Linear Dermand, identify the price and quantity that would Maximize Total Revenue:

Qx = 80 - 4P

Question 5 options:

	A. Q =80 & P=$10
	B. Q =40 & P=$20
	C. Q =40 & P=$10
	D. Q =20 & P =$40

Answer 1

1.

The answer is

C It measures the percentage change in quantity demanded of good x as a result of a percentage change in price per unit of good x.

Ep=% change in quantity demanded/% change in price

2.

The answer is

D. If price increases, total revenue will decline.

For an inelastic demand, an increase in price will increase the total revenue.

3.

The answer is B. Is addictive in nature.

Goods that elastic are not addictive in nature eg cigarettes fro smokers have an inelastic demand since a smoker has a habit of smoking

4.

The answer is D. lEpl = 1

average=(x1+x2)/2

% change =(x2-x1)/average*100

Ep=% change in quantity demanded/% change in price

	X1	X2	Average	X2-X1	% change	Ep
Quantity	20	10	15	-10	-66.66666667	-1
Price	2	4	3	2	66.66666667