Question

QUESTION 10

The price elasticity of demand for gasoline is -0.25. If we expect the price of gasoline to increase by 8 percent, what is the expected change in the quantity of gasoline demanded?

	A.	Quantity declines by 2 percent
	B.	Quantity declines by 8 percent
	C.	Quantity increases by 2 percent
	D.	Quantity declines by 4 percent

QUESTION 11

The income elasticity of demand for bananas is -0.1. Is this good normal or inferior?

	A.	Normal
	B.	Neither normal nor inferior
	C.	Inferior

QUESTION 12

If your income increases and you view ice cream as a normal good, which direction does your demand curve for ice cream shift as your income rises?

	A.	Rightward
	B.	Leftward
	C.	Demand curve does not shift

QUESTION 13

If you walk into Starbucks and find that the price of coffee is higher than you expected, you tend to shift your order to hot tea. What is the relationship between coffee and tea in your consumption?

	A.	Substitutes
	B.	Complements
	C.	Both goods are inferior

QUESTION 14

You own a luxury car dealership, and your marketing team tells you that the price elasticity of demand for your cars is -3.5. If you cut the price of your cars by 5 percent, what is the expected impact on your sales revenue?

	A.	Increases
	B.	Decreases
	C.	Does not change
	D.	There is no relationship between the price elasticity of demand and sale revenue

Answer 1

QUESTION 10

A.Quantity declines by 2 percent

Explanation:

price elasticity of demand= percentage change in quantity/ percentage change in price

-0.25=percentage change in quantity/8

-0.25*8=percentage change in quantity

-2%=percentage change in quantity

QUESTION 11

C.Inferior

Explanation; inferior good has negative income elasticity of demand. because as income increases the demand for the inferior good decreases.

QUESTION 12

B.Rightward

Explanation: when income increases the demand for normal good is increases the demand curve shifts to the rightward.

QUESTION 13

A.Substitutes

explanation: when two goods are use for the each other place are called substitute goods. when price of the one good increases and it cause the increase of the demand for another good it is called substitute good. here coffee's price rise and the tea demand is increase due to that so, they both are substitute goods.

QUESTION 14.

A. Increases

Explanation: here price elasticity of demand is elastic. so, price and Total revenue moves into opposite direction. so, when price will reduce total revenue will increase.