5: Elasticity

Question 1

To increase total revene they decrease price. This is an assumption that the own price elasticity of demand is?

Answer 1

Demand is elastic

Question 2

There is a price floor that is above equil price. The quantity bought and sold will decrease. This will be larger if

Answer 2

The elasticity of demand is larger

Question 3

Demand for good Y is inelastic. Supply decreases. What will happen to total revenue of sellers of good Y?

Answer 3

Total revenue will increase

Question 4

Price increases by 20% quanity demanded falls by 20%. What is is true about elasticity and total revenue?

Answer 4

Demand is unit elastic and total revenue will remain unchanged

Question 5

The price of good A increases. Because of this total revenues go down. What does this say about elasticity of demand?

Answer 5

Demand is elastic

Question 6

What is true of both elasticity of demand and elasticity of supply?

Answer 6

If the curve is vertical then it is perfectly inelastic. If the curve is horizontal then it is perfectly elastic. Both will have larger elasticity if there is more time to adjust

Question 7

Elasticity of demand for a good is .5. What does this mean?

Answer 7

Good B is a normal good

Question 8

The cross price elasticity for good c with respect to the price of good d is -.2 what is true?

Answer 8

The goods are compliments

Question 9

Demand curve is a straight line. As we move downward and to the right along the demand curve what happens to the elasticty of demand?

Answer 9

The elasticity decreases

Question 10

Supply curve is a vertical line. What is the elasticity of supply?

Answer 10

Zero

Question 11

Apples and bananas are substitutes. What does this mean?

Answer 11

The cross price elasticity of demand for apples with respect to bananas is greater than zero (positive)