Question

1. The price elasticity of demand measures, a. how responsive suppliers are to price changes. b. how responsive sales are to changes in the price of a related good. c. how responsive the quantity demanded is to a change in price. d. how responsive sales are to a change in buyers' incomes. 2. Suppose the value of the price elasticity of demand is -3. This implies that, a. a 1 percent increase in the price of the good causes the quantity demanded to increase by 3 percent. b. a 1 percent increase in the price of the good causes the quantity demanded to decrease by 3 percent. c. a 3 percent increase in the price of the good causes the quantity demanded to decrease by 1 percent. d. a 3 percent increase in the price of the good causes the quantity demanded to increase by 1 percent. 3. For which of the following products is the price demand the least elastic (most inelastic)? a. Cigarettes b. Kellogg's Corn Flakes c. Honda Civics d. Cigarette Lighters 4. Which of the following likely has the most inelastic supply? a. Large scale office buildings b. Computer processors C. T-shirts d. Cigarettes 5. If a price change from P = 100 to P = 80 leads to an increase in the quantity demanded from Q = 100 to Q = 150, the price elasticity of demand is which of the following? When calculating the percentages, use the original price/quantity values. a. -2/5 b. -5/2 c. -1/5 d. -5 6. A 10 percent increase in the world price of corn is associated in the short run is associated with a 5 percent increase in the quantity supplied. The elasticity of supply of corn is, a. -5 b. 5 c. -2 d. 2

Answer 1

1. Option C

Explanation: Price elasticity of demand = % change in quantity demanded / % change in price.

2. Option B

Explanation: Price elasticity of demand = % change in quantity demanded / % change in price. Also, when price goes up quantity demanded goes down.

3. Option A

Explanation: Cigarettes are necessities fro addicted people.

4. Option A

Explanation: Suppliers make huge investment in these industries and they do not adjust quantity supplied much to the changes in price.