Question

 1. You are on a campus committee that sets the ticket prices for basketball games. The

 committee wants to increase the total money generated from ticket sales. When should

 the committee choose to raise ticket prices?

 a. Always.

 b. When demand for basketball tickets is inelastic.

 c. When demand for basketball tickets is clastic.

 d. Never.

 2. A 10% rise in the price of housing reduces the quantity demanded of housing by 3%.

 We can conclude that the demand for housing is

 a. inelastic.

 c. unitary elastic.

 b. elastic.

 d. perfectly elastic.

 3. Along a straight-line, downward-sloping demand curve, the price elasticity of demand

 a. remains constant.

 b. equals the slope of the line.

 c. varies along the curve.

 d. is infinitely large.

 4. A good is more likely to have an inelastic demand when

 a. it has many substitutes.

 b. consumers have a long time to adjust to price changes.

 c. the share of the budget spent on the good is very small.

 d. only one large firm supplies the good.

 5. If bus travel is an inferior good, then its income clasticity of demand will be

 a. strictly greater than one.

 c. equal to zero.

 b. positive.

 d. negative.

 6. To determine whether two goods are substitutes or complements, an economist would

 estimate the

 a. price elasticity of demand.

 b. income elasticity of demand.

 c. cross-elasticity of demand.

 d. price elasticity of supply.

Answer 1

1) b. When demand is inelastic, revenue can be maximised by increasing price, as demand for the product does not change significantly after a price increase when the consumer has an inelastic demand for a commodity.

2) a. We know,

Elasticity of demand (e) = (Percentage change in Quantity Demanded)/ (Percentage change in Price)

Here, e = 3/10 = 0.3

Clearly, demand is inelastic.

3) c. Along a straight line, the elasticity varies.

4) d. Demand is inelastic only when one firm supplies the good as there are not many substitutes available. Example: Electricity Market.

5) d. Income Elasticity for an inferior good is always negative.

6) c. Cross Price Elasticity of demand is defined as the percentage change in quantity demanded of Good 1 arising due to change in price of Good 2 (another good). Hence, we require Cross Price Elasticity of demand.