Question

Problem Set #1 - Micro Online - Dunbar, p. 4. (5 points) Please answer each of the following multiple choice questions by HIGHLIGHTING OR BOLDING the response that best answers the question 1. Tony's "Rugs-R-Us" Toupee shop sells hairpieces for balding men. Tony knows that a 5% increase in the price of his hairpieces will result in a 20% decrease in the number of hairpieces sold. The price elasticity of demand (pEd) facing Tony's business equals indicating an a. 0.25; inelastic demand b. 0.25; elastic demand c. 4.0; inelastic demand d. 4.0; elastic demand 2. A recent study at a liberal arts college concluded that the price elasticity of demand (pEd) is 1.2 for college courses at their institution. The administration is considering a tuition increase to help balance the budget. An economist might advise the school to decrease tuition in order to increase revenue since demand is elastic b. decrease tuition in order to increase revenue since demand is inelastic. c. increase tuition in order to increase revenue since demand is elastic. d. increase tuition in order to increase revenue since demand is inelastic. 3. Put the following products in order from the most elastic to the least elastic demand: food, beer, Leinie's Red Lager beer, Leinie's Red Lager beer served at Moe's Tavern. a. (1) Leinie's Red Lager beer served at Moe's Tavern, (2) beer, (3) Leinie's Red Lager beer. (4) food b. (1) beer, (2) food (3) Leinie's Red Lager beer, (4) Leinie's Red Lager beer served at Moe's Tavern c. (1) Leinie's Red Lager beer served at Moe's Tavern, (2) Leinie's Red Lager beer, (3) beer, (4) food d. (1) food, (2) Leinie's Red Lager beer, (3) Leinie's Red Lager beer served at Moe's Tavern, (4) beer 4. (Hint: It would be helpful to draw this one before answering.) If the supply curve is perfectly inelastic, then an increase in demand will: a. increase both the price and the quantity exchanged. b. increase the price but result in no change in the quantity exchanged. c. increase the quantity exchanged but result in no change in the price. d. decrease the price but not change the quantity exchanged. 5. Which of the following pairs of goods would most likely exhibit a cross-price elasticity of demand (xpEd) of -2.5? a. orange juice and grapefruit juice (substitutes) b. bagels and cream cheese (complements) c. both of the above. d. none of the above.

Answer 1

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1) Answer D 4.0 elastic ed = t change in Quantity demandeer 1. Change in Price - esl = elastic ecl = inelastic - e=1 = unit elastic price will 2) Answer. A - when demand is elastic (est) to decrease in increase the total revenue and vice-versa. - When demand is inelastic (eLt) increase in increase the total devenue and vice-versa. price will Answer C least elastic demand food is Essential items have very essential Answer- B ha 4 - - - TD₂ -DI 0-5 Answer B. Always complementary goods have negative cross elasticity and substitute goods have positive.