Question

NAME SECTION LAST NAME FIRST NAME PRICE ELASTICITY OF DEMAND price elasticity of demand measures how much in percentage terms demand fails to the left) when price is demandes (shifts to the right when price ralls quantity demanded falls when price is quantity demanded rises when price rises the graphs below to answer questions 2 and 3. Graph A Price Price Graph B Demand Demand - Quantity Quantity demand. Graph A represents unit elastic zer elastic perfectly inclastic perfectly elastic d. demand. 7 Graph B represents a unit elastic b zero elastic c. d. perfectly inelastic perfectly elastic If the quantity demanded of juice decreased by 15% when the price of juice increased by 10%, the price elasticity of demand for juice is and the demand for juice is said to be a. 2/3: elastic C. 3/2, elastic b. 2/3: inelastic d. 3/2; inelastic stic i 312, inelastic 5. If the absolute value of the price elasticity of demand for milk is equal to 0.6, the demand for milk is: a relatively elastic. relatively inelastic b. unit elastic. d. perfectly inelastic. demand curves. Products that are necessities with no close substitutes tend to have a. perfectly elastic b. unit elastic c. elastic d. inelastic

Answer 1

(1) Price elasticity of demand measures how much, in percentage terms quantity demanded falls when price rises.

Answer: Option (C).

(2) In graph A, demand curve is horizontal.

Hence the demand is perfectly elastic.

Answer: Option (D)

(3) In graph B, demand curve is vertical.

Hence, the demand is perfectly inelastic.

Answer: Option (C)

(4) Quantity demanded of juice decreased by 15%

Hence, the % change in quantity demanded = -15

Price of juice increased by 10%

Hence, the % change in price = 10.

Price elasticity of demand = (% change in the quantity demanded / % change in the price)

Price elasticity of demand = (-15 / 10)

Price elasticity of demand = -3/2

Price elasticity of demand = 3/2 (in absolute terms)

Since, the price elasticity of demand for juice (in absolute terms) is greater than 1, then the demand is elastic.

Answer: Option (C).

(5) If the absolute value of the price elasticity of demand for milk is equal is 0.6, the demand for milk is relatively inelastic.

If absolute value of the price elasticity of demand is greater than 1, the demand is elastic.

If absolute value of the price elasticity of demand is less than 1, the demand is inelastic.

Answer: Option ( C)

(6) Products that are necessities with no close substitute tend to have inelastic demand curves.

Answer: Option (D)

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